TMI BlogRevenue from Contracts with CustomersX X X X Extracts X X X X X X X X Extracts X X X X ..... s Standard. An entity shall apply this Standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances. 4 This Standard specifies the accounting for an individual contract with a customer. However, as a practical expedient, an entity may apply this Standard to a portfolio of contracts (or performance obligations ) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual contracts (or performance obligations) within that portfolio. When accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of the portfolio. Scope 5 An entity shall apply this Standard to all contracts with customers, except the following: 2 [ (a) lease contracts within the scope of Ind AS 116, Leases; ] (b) insurance contracts within the scope of Ind AS 104, Insurance Contracts ; (c) financial instruments and other contractual rights or obligations within the scope of Ind AS 109, Financial Inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the costs incurred to fulfil a contract with a customer if those costs are not within the scope of another Standard (see paragraphs 91 104). An entity shall apply those paragraphs only to the costs incurred that relate to a contract with a customer (or part of that contract) that is within the scope of this Standard. Recognition Identifying the contract 9 An entity shall account for a contract with a customer that is within the scope of this Standard only when all of the following criteria are met: (a) the parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are committed to perform their respective obligations; (b) the entity can identify each party s rights regarding the goods or services to be transferred; (c) the entity can identify the payment terms for the goods or services to be transferred; (d) the contract has commercial substance (ie the risk, timing or amount of the entity s future cash flows is expected to change as a result of the contract); and (e) it is probable that the entity will collect the consideration to which it will be entitled in exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer s ability to pay the consideration deteriorates significantly, an entity would reassess whether it is probable that the entity will collect the consideration to which the entity will be entitled in exchange for the remaining goods or services that will be transferred to the customer. 14 If a contract with a customer does not meet the criteria in paragraph 9, an entity shall continue to assess the contract to determine whether the criteria in paragraph 9 are subsequently met. 15 When a contract with a customer does not meet the criteria in paragraph 9 and an entity receives consideration from the customer, the entity shall recognise the consideration received as revenue only when either of the following events has occurred: (a) the entity has no remaining obligations to transfer goods or services to the customer and all, or substantially all, of the consideration promised by the customer has been received by the entity and is non-refundable; or (b) the contract has been terminated and the consideration received from the customer is non-refundable. 16 An entity shall recognise the consideration received from a customer as a liability until one of the events i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r evidence. If the parties to a contract have approved a change in the scope of the contract but have not yet determined the corresponding change in price, an entity shall estimate the change to the transaction price arising from the modification in accordance with paragraphs 50 54 on estimating variable consideration and paragraphs 56 58 on constraining estimates of variable consideration. 20 An entity shall account for a contract modification as a separate contract if both of the following conditions are present: (a) the scope of the contract increases because of the addition of promised goods or services that are distinct (in accordance with paragraphs 26 30); and (b) the price of the contract increases by an amount of consideration that reflects the entity s stand-alone selling prices of the additional promised goods or services and any appropriate adjustments to that price to reflect the circumstances of the particular contract. For example, an entity may adjust the stand-alone selling price of an additional good or service for a discount that the customer receives, because it is not necessary for the entity to incur the selling-related costs that it would incur whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer to the customer either: (a) a good or service (or a bundle of goods or services) that is distinct; or (b) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (see paragraph 23). 23 A series of distinct goods or services has the same pattern of transfer to the customer if both of the following criteria are met: (a) each distinct good or service in the series that the entity promises to transfer to the customer would meet the criteria in paragraph 35 to be a performance obligation satisfied over time; and (b) in accordance with paragraphs 39 40, the same method would be used to measure the entity s progress towards complete satisfaction of the performance obligation to transfer each distinct good or service in the series to the customer. Promises in contracts with customers 24 A contract with a customer generally explicitly states the goods or services that an entity promises to transfer to a customer. However, the performance obligations identified in a contract with a customer may not be limited to the goods or services that are explicitly stated in that contract. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phs B39 B43). 27 A good or service that is promised to a customer is distinct if both of the following criteria are met: (a) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (ie the good or service is capable of being distinct); and (b) the entity s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (ie the promise to transfer the good or service is distinct within the context of the contract). 28 A customer can benefit from a good or service in accordance with paragraph 27(a) if the good or service could be used, consumed, sold for an amount that is greater than scrap value or otherwise held in a way that generates economic benefits. For some goods or services, a customer may be able to benefit from a good or service on its own. For other goods or services, a customer may be able to benefit from the good or service only in conjunction with other readily available resources. A readily available resource is a good or service that is sold separately (by the entity or another entity) or a resource that the custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services until it identifies a bundle of goods or services that is distinct. In some cases, that would result in the entity accounting for all the goods or services promised in a contract as a single performance obligation. Satisfaction of performance obligations 31 An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. 32 For each performance obligation identified in accordance with paragraphs 22 30, an entity shall determine at contract inception whether it satisfies the performance obligation over time (in accordance with paragraphs 35 37) or satisfies the performance obligation at a point in time (in accordance with paragraph 38). If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time. 33 Goods and services are assets, even if only momentarily, when they are received and used (as in the case of many services). Control of an asset refers to the ability to direct the use of, and obtain substantially all o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider the terms of the contract, as well as any laws that apply to the contract, when evaluating whether it has an enforceable right to payment for performance completed to date in accordance with paragraph 35(c). The right to payment for performance completed to date does not need to be for a fixed amount. However, at all times throughout the duration of the contract, the entity must be entitled to an amount that at least compensates the entity for performance completed to date if the contract is terminated by the customer or another party for reasons other than the entity s failure to perform as promised. Paragraphs B9 B13 provide guidance for assessing the existence and enforceability of a right to payment and whether an entity s right to payment would entitle the entity to be paid for its performance completed to date. Performance obligations satisfied at a point in time 38 If a performance obligation is not satisfied over time in accordance with paragraphs 35 37, an entity satisfies the performance obligation at a point in time. To determine the point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formance obligation in addition to the performance obligation to transfer the asset. For example, an entity may have transferred control of an asset to a customer but not yet satisfied an additional performance obligation to provide maintenance services related to the transferred asset. (e) The customer has accepted the asset-the customer s acceptance of an asset may indicate that it has obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. To evaluate the effect of a contractual customer acceptance clause on when control of an asset is transferred, an entity shall consider the guidance in paragraphs B83 B86. Measuring progress towards complete satisfaction of a performance obligation 39 For each performance obligation satisfied over time in accordance with paragraphs 35 37, an entity shall recognise revenue over time by measuring the progress towards complete satisfaction of that performance obligation. The objective when measuring progress is to depict an entity s performance in transferring control of goods or services promised to a customer (ie the satisfaction of an entity s performance obligation). 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation. Measurement 46 When (or as) a performance obligation is satisfied, an entity shall recognise as revenue the amount of the transaction price (which excludes estimates of variable consideration that are constrained in accordance with paragraphs 56 58) that is allocated to that performance obligation. Determining the transaction price 47 An entity shall consider the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. 48 The nature, timing and amount of consideration promised by a customer affect the estimate of the transaction price. When determining the transaction price, an entity shall consider the effects of all of the following: (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed policies or specific statements that the entity will accept an amount of consideration that is less than the price stated in the contract. That is, it is expected that the entity will offer a price concession. Depending on the jurisdiction, industry or customer this offer may be referred to as a discount, rebate, refund or credit. (b) other facts and circumstances indicate that the entity s intention, when entering into the contract with the customer, is to offer a price concession to the customer. 53 An entity shall estimate an amount of variable consideration by using either of the following methods, depending on which method the entity expects to better predict the amount of consideration to which it will be entitled: (a) The expected value-the expected value is the sum of probability-weighted amounts in a range of possible consideration amounts. An expected value may be an appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics. (b) The most likely amount-the most likely amount is the single most likely amount in a range of possible consideration amounts (ie the single most likely ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the likelihood or the magnitude of a revenue reversal include, but are not limited to, any of the following: (a) the amount of consideration is highly susceptible to factors outside the entity s influence. Those factors may include volatility in a market, the judgement or actions of third parties, weather conditions and a high risk of obsolescence of the promised good or service. (b) the uncertainty about the amount of consideration is not expected to be resolved for a long period of time. (c) the entity s experience (or other evidence) with similar types of contracts is limited, or that experience (or other evidence) has limited predictive value. (d) the entity has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances. (e) the contract has a large number and broad range of possible consideration amounts. 58 An entity shall apply paragraph B63 to account for consideration in the form of a sales-based or usage-based royalty that is promised in exchange for a licence of intellectual property. Reassessment of variable consideration 59 At the end of each re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services in advance and the timing of the transfer of those goods or services is at the discretion of the customer. (b) a substantial amount of the consideration promised by the customer is variable and the amount or timing of that consideration varies on the basis of the occurrence or non-occurrence of a future event that is not substantially within the control of the customer or the entity (for example, if the consideration is a sales-based royalty). (c) the difference between the promised consideration and the cash selling price of the good or service (as described in paragraph 61) arises for reasons other than the provision of finance to either the customer or the entity, and the difference between those amounts is proportional to the reason for the difference. For example, the payment terms might provide the entity or the customer with protection from the other party failing to adequately complete some or all of its obligations under the contract. 63 As a practical expedient, an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air value could vary because of the entity s performance), an entity shall apply the requirements in paragraphs 56 58. 69 If a customer contributes goods or services (for example, materials, equipment or labour) to facilitate an entity s fulfilment of the contract, the entity shall assess whether it obtains control of those contributed goods or services. If so, the entity shall account for the contributed goods or services as non-cash consideration received from the customer. Consideration payable to a customer 70 Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity s goods or services from the customer). Consideration payable to a customer also includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity s goods or services from the customer). An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as desc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one performance obligation. However, paragraphs 84 86 may apply if an entity promises to transfer a series of distinct goods or services identified as a single performance obligation in accordance with paragraph 22(b) and the promised consideration includes variable amounts. Allocation based on stand-alone selling prices 76 To allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, an entity shall determine the stand-alone selling price at contract inception of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those stand-alone selling prices. 77 The stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer. The best evidence of a stand-alone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers. A contractually stated price or a list price for a good or service may be (but shall not be presumed to be) the stand-alone selling price of that good or service. 78 If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract if two or more of those goods or services have highly variable or uncertain stand-alone selling prices. For example, an entity may use a residual approach to estimate the aggregate stand-alone selling price for those promised goods or services with highly variable or uncertain stand-alone selling prices and then use another method to estimate the stand-alone selling prices of the individual goods or services relative to that estimated aggregate stand-alone selling price determined by the residual approach. When an entity uses a combination of methods to estimate the stand-alone selling price of each promised good or service in the contract, the entity shall evaluate whether allocating the transaction price at those estimated stand-alone selling prices would be consistent with the allocation objective in paragraph 73 and the requirements for estimating stand-alone selling prices in paragraph 78. Allocation of a discount 81 A customer receives a discount for purchasing a bundle of goods or services if the sum of the stand-alone selling prices of those promised goods or services in the contract exceeds the promised consideration in a contract. Except when an entity has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two-year cleaning service contract will increase on the basis of movements in a specified inflation index). 85 An entity shall allocate a variable amount (and subsequent changes to that amount) entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation in accordance with paragraph 22(b) if both of the following criteria are met: (a) the terms of a variable payment relate specifically to the entity s efforts to satisfy the performance obligation or transfer the distinct good or service (or to a specific outcome from satisfying the performance obligation or transferring the distinct good or service); and (b) allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective in paragraph 73 when considering all of the performance obligations and payment terms in the contract. 86 The allocation requirements in paragraphs 73 83 shall be applied to allocate the remaining amount of the transaction price that does not meet the criteria in paragraph 85. Changes in the transaction price 87 After contract inception, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity expects to recover those costs. 92 The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission). 93 Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained shall be recognised as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. 94 As a practical expedient, an entity may recognise the incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity otherwise would have recognised is one year or less. Costs to fulfil a contract 95 If the costs incurred in fulfilling a contract with a customer are not within the scope of another Standard (for example, Ind AS 2, Inventories , Ind AS 16, Property, Plant and Equipment or Ind AS 38, Intangible Assets ), an entity shall recognise an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria: (a) the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecognised in accordance with paragraph 91 or 95 shall be amortised on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The asset may relate to goods or services to be transferred under a specific anticipated contract (as described in paragraph 95(a)). 100 An entity shall update the amortisation to reflect a significant change in the entity s expected timing of transfer to the customer of the goods or services to which the asset relates. Such a change shall be accounted for as a change in accounting estimate in accordance with Ind AS 8. 101 An entity shall recognise an impairment loss in profit or loss to the extent that the carrying amount of an asset recognised in accordance with paragraph 91 or 95 exceeds: (a) the remaining amount of consideration that the entity expects to receive in exchange for the goods or services to which the asset relates; less (b) the costs that relate directly to providing those goods or services and that have not been recognised as expenses (see paragraph 97). 102 For the purposes of applying paragraph 101 to determine the amount of consideration that an entity ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluding any amounts presented as a receivable. A contract asset is an entity s right to consideration in exchange for goods or services that the entity has transferred to a customer. An entity shall assess a contract asset for impairment in accordance with Ind AS 109. An impairment of a contract asset shall be measured, presented and disclosed on the same basis as a financial asset that is within the scope of Ind AS 109 (see also paragraph 113(b)). 108 A receivable is an entity s right to consideration that is unconditional. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. For example, an entity would recognise a receivable if it has a present right to payment even though that amount may be subject to refund in the future. An entity shall account for a receivable in accordance with Ind AS 109. Upon initial recognition of a receivable from a contract with a customer, any difference between the measurement of the receivable in accordance with Ind AS 109 and the corresponding amount of revenue recognised shall be presented as an expense (for example, as an impairment loss). 109 This Standard uses th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall disclose separately from impairment losses from other contracts. Disaggregation of revenue 114 An entity shall disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. An entity shall apply the guidance in paragraphs B87 B89 when selecting the categories to use to disaggregate revenue. 115 In addition, an entity shall disclose sufficient information to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue (in accordance with paragraph 114) and revenue information that is disclosed for each reportable segment, if the entity applies Ind AS 108, Operating Segments . Contract balances 116 An entity shall disclose all of the following: (a) the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers, if not otherwise separately presented or disclosed; (b) revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period; and (c) revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the entity has promised to transfer, highlighting any performance obligations to arrange for another party to transfer goods or services (ie if the entity is acting as an agent); (d) obligations for returns, refunds and other similar obligations; and (e) types of warranties and related obligations. Transaction price allocated to the remaining performance obligations 120 An entity shall disclose the following information about its remaining performance obligations: (a) the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period; and (b) an explanation of when the entity expects to recognise as revenue the amount disclosed in accordance with paragraph 120(a), which the entity shall disclose in either of the following ways: (i) on a quantitative basis using the time bands that would be most appropriate for the duration of the remaining performance obligations; or (ii) by using qualitative information. 121 As a practical expedient, an entity need not disclose the information in paragraph 120 for a performance obligation if either of the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... measuring non-cash consideration; (b) assessing whether an estimate of variable consideration is constrained; (c) allocating the transaction price, including estimating stand-alone selling prices of promised goods or services and allocating discounts and variable consideration to a specific part of the contract (if applicable); and (d) measuring obligations for returns, refunds and other similar obligations. 126AA An entity shall reconcile the amount of revenue recognised in the statement of profit and loss with the contracted price showing separately each of the adjustments made to the contract price, for example, on account of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, etc., specifying the nature and amount of each such adjustment separately. Assets recognised from the costs to obtain or fulfil a contract with a customer 127 An entity shall describe both of the following: (a) the judgements made in determining the amount of the costs incurred to obtain or fulfil a contract with a customer (in accordance with paragraph 91 or 95); and (b) the method it uses to determine the amortisation for each reporting per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of an entity s ordinary activities. stand-alone selling price (of a good or service) The price at which an entity would sell a promised good or service separately to a customer . transaction price (for a contract with a customer) The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer , excluding amounts collected on behalf of third parties. Appendix B Application Guidance This appendix is an integral part of the Standard. It describes the application of paragraphs 1 129 and has the same authority as the other parts of the Standard. B1 This application guidance is organised into the following categories: (a) performance obligations satisfied over time (paragraphs B2 B13); (b) methods for measuring progress towards complete satisfaction of a performance obligation (paragraphs B14 B19); (c) sale with a right of return (paragraphs B20 B27); (d) warranties (paragraphs B28 B33); (e) principal versus agent considerations (paragraphs B34 B38); ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t need to substantially re-perform the work the entity has completed to date, an entity shall make both of the following assumptions: (a) disregard potential contractual restrictions or practical limitations that otherwise would prevent the entity from transferring the remaining performance obligation to another entity; and (b) presume that another entity fulfilling the remainder of the performance obligation would not have the benefit of any asset that is presently controlled by the entity and that would remain controlled by the entity if the performance obligation were to transfer to another entity. Customer controls the asset as it is created or enhanced (paragraph 35(b)) B5 In determining whether a customer controls an asset as it is created or enhanced in accordance with paragraph 35(b), an entity shall apply the requirements for control in paragraphs 31 34 and 38. The asset that is being created or enhanced (for example, a work-in-progress asset) could be either tangible or intangible. Entity s performance does not create an asset with an alternative use (paragraph 35(c)) B6 In assessing whether an asset has an alternative use to an entity in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty s potential loss of profit if the contract were to be terminated. Compensation for a reasonable profit margin need not equal the profit margin expected if the contract was fulfilled as promised, but an entity should be entitled to compensation for either of the following amounts: (a) a proportion of the expected profit margin in the contract that reasonably reflects the extent of the entity s performance under the contract before termination by the customer (or another party); or (b) a reasonable return on the entity s cost of capital for similar contracts (or the entity s typical operating margin for similar contracts) if the contract-specific margin is higher than the return the entity usually generates from similar contracts. B10 An entity s right to payment for performance completed to date need not be a present unconditional right to payment. In many cases, an entity will have an unconditional right to payment only at an agreed-upon milestone or upon complete satisfaction of the performance obligation. In assessing whether it has a right to payment for performance completed to date, an entity shall consider whether it would have an enforceable right to demand or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment schedule in a contract specifies the timing and amount of consideration that is payable by a customer, the payment schedule might not necessarily provide evidence of the entity s right to payment for performance completed to date. This is because, for example, the contract could specify that the consideration received from the customer is refundable for reasons other than the entity failing to perform as promised in the contract. Methods for measuring progress towards complete satisfaction of a performance obligation B14 Methods that can be used to measure an entity s progress towards complete satisfaction of a performance obligation satisfied over time in accordance with paragraphs 35 37 include the following: (a) output methods (see paragraphs B15 B17); and (b) input methods (see paragraphs B18 B19). Output methods B15 Output methods recognise revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. Output methods include methods such as surveys of performance completed to date, appraisals of results achieved, milestone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 39, do not depict the entity s performance in transferring control of goods or services to the customer. For instance, when using a cost-based input method, an adjustment to the measure of progress may be required in the following circumstances: (a) When a cost incurred does not contribute to an entity s progress in satisfying the performance obligation. For example, an entity would not recognise revenue on the basis of costs incurred that are attributable to significant inefficiencies in the entity s performance that were not reflected in the price of the contract (for example, the costs of unexpected amounts of wasted materials, labour or other resources that were incurred to satisfy the performance obligation). (b) When a cost incurred is not proportionate to the entity s progress in satisfying the performance obligation. In those circumstances, the best depiction of the entity s performance may be to adjust the input method to recognise revenue only to the extent of that cost incurred. For example, a faithful depiction of an entity s performance might be to recognise revenue at an amount equal to the cost of a good used to satisfy a performance obligation if the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for constraining estimates of variable consideration in paragraphs 56 58) to determine the amount of consideration to which the entity expects to be entitled (ie excluding the products expected to be returned). For any amounts received (or receivable) for which an entity does not expect to be entitled, the entity shall not recognise revenue when it transfers products to customers but shall recognise those amounts received (or receivable) as a refund liability. Subsequently, at the end of each reporting period, the entity shall update its assessment of amounts for which it expects to be entitled in exchange for the transferred products and make a corresponding change to the transaction price and, therefore, in the amount of revenue recognised. B24 An entity shall update the measurement of the refund liability at the end of each reporting period for changes in expectations about the amount of refunds. An entity shall recognise corresponding adjustments as revenue (or reductions of revenue). B25 An asset recognised for an entity s right to recover products from a customer on settling a refund liability shall initially be measured by reference to the former carrying amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cifications. B31 In assessing whether a warranty provides a customer with a service in addition to the assurance that the product complies with agreed-upon specifications, an entity shall consider factors such as: (a) Whether the warranty is required by law-if the entity is required by law to provide a warranty, the existence of that law indicates that the promised warranty is not a performance obligation because such requirements typically exist to protect customers from the risk of purchasing defective products. (b) The length of the warranty coverage period-the longer the coverage period, the more likely it is that the promised warranty is a performance obligation because it is more likely to provide a service in addition to the assurance that the product complies with agreed-upon specifications. (c) The nature of the tasks that the entity promises to perform-if it is necessary for an entity to perform specified tasks to provide the assurance that a product complies with agreed-upon specifications (for example, a return shipping service for a defective product), then those tasks likely do not give rise to a performance obligation. B32 If a warranty, or a part of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ph 33) each specified good or service before that good or service is transferred to the customer. B35 An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. However, an entity does not necessarily control a specified good if the entity obtains legal title to that good only momentarily before legal title is transferred to a customer. An entity that is a principal may satisfy its performance obligation to provide the specified good or service itself or it may engage another party (for example, a subcontractor) to satisfy some or all of the performance obligation on its behalf. B35A When another party is involved in providing goods or services to a customer, an entity that is a principal obtains control of any one of the following: (a) a good or another asset from the other party that it then transfers to the customer. (b) a right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service to the customer on the entity s behalf. (c) a good or service from the other party that it then combines with other goods or services in providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity s behalf. (b) the entity has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer (for example, if the customer has a right of return). For example, if the entity obtains, or commits itself to obtain, the specified good or service before obtaining a contract with a customer, that may indicate that the entity has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the good or service before it is transferred to the customer. (c) the entity has discretion in establishing the price for the specified good or service. Establishing the price that the customer pays for the specified good or service may indicate that the entity has the ability to direct the use of that good or service and obtain substantially all of the remaining benefits. However, an agent can have discretion in establishing prices in some cases. For example, an agent may have some flexibility in setting prices in order to generate additional revenue from its service of arranging for goods or services to be provided by other parties to customers. B37A The indicators in paragraph B37 may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction price to performance obligations on a relative stand-alone selling price basis. If the stand-alone selling price for a customer s option to acquire additional goods or services is not directly observable, an entity shall estimate it. That estimate shall reflect the discount that the customer would obtain when exercising the option, adjusted for both of the following: (a) any discount that the customer could receive without exercising the option; and (b) the likelihood that the option will be exercised. B43 If a customer has a material right to acquire future goods or services and those goods or services are similar to the original goods or services in the contract and are provided in accordance with the terms of the original contract, then an entity may, as a practical alternative to estimating the stand-alone selling price of the option, allocate the transaction price to the optional goods or services by reference to the goods or services expected to be provided and the corresponding expected consideration. Typically, those types of options are for contract renewals. Customers unexercised rights B44 In accordance with paragraph 106, upon receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a promised good or service to the customer (see paragraph 25). Instead, the upfront fee is an advance payment for future goods or services and, therefore, would be recognised as revenue when those future goods or services are provided. The revenue recognition period would extend beyond the initial contractual period if the entity grants the customer the option to renew the contract and that option provides the customer with a material right as described in paragraph B40. B50 If the non-refundable upfront fee relates to a good or service, the entity shall evaluate whether to account for the good or service as a separate performance obligation in accordance with paragraphs 22 30. B51 An entity may charge a non-refundable fee in part as compensation for costs incurred in setting up a contract (or other administrative tasks as described in paragraph 25). If those setup activities do not satisfy a performance obligation, the entity shall disregard those activities (and related costs) when measuring progress in accordance with paragraph B19. That is because the costs of setup activities do not depict the transfer of services to the customer. The entity shall assess whether costs in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r over time. In making this determination, an entity shall consider whether the nature of the entity s promise in granting the licence to a customer is to provide the customer with either: (a) a right to access the entity s intellectual property as it exists throughout the licence period; or (b) a right to use the entity s intellectual property as it exists at the point in time at which the licence is granted. Determining the nature of the entity s promise B57 * B58 The nature of an entity s promise in granting a licence is a promise to provide a right to access the entity s intellectual property if all of the following criteria are met: (a) the contract requires, or the customer reasonably expects, that the entity will undertake activities that significantly affect the intellectual property to which the customer has rights (see paragraph B59 and B59A); (b) the rights granted by the licence directly expose the customer to any positive or negative effects of the entity s activities identified in paragraph B58(a); and (c) those activities do not result in the transfer of a good or a service to the customer as those activities occur (see paragraph 25). B5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction of that performance obligation to provide access. B61 If the criteria in paragraph B58 are not met, the nature of an entity s promise is to provide a right to use the entity s intellectual property as that intellectual property exists (in terms of form and functionality) at the point in time at which the licence is granted to the customer. This means that the customer can direct the use of, and obtain substantially all of the remaining benefits from, the licence at the point in time at which the licence transfers. An entity shall account for the promise to provide a right to use the entity s intellectual property as a performance obligation satisfied at a point in time. An entity shall apply paragraph 38 to determine the point in time at which the licence transfers to the customer. However, revenue cannot be recognised for a licence that provides a right to use the entity s intellectual property before the beginning of the period during which the customer is able to use and benefit from the licence. For example, if a software licence period begins before an entity provides (or otherwise makes available) to the customer a code that enables the customer to immediately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Repurchase agreements B64 A repurchase agreement is a contract in which an entity sells an asset and also promises or has the option (either in the same contract or in another contract) to repurchase the asset. The repurchased asset may be the asset that was originally sold to the customer, an asset that is substantially the same as that asset, or another asset of which the asset that was originally sold is a component. B65 Repurchase agreements generally come in three forms: (a) an entity s obligation to repurchase the asset (a forward); (b) an entity s right to repurchase the asset (a call option); and (c) an entity s obligation to repurchase the asset at the customer s request (a put option). A forward or a call option B66 If an entity has an obligation or a right to repurchase the asset (a forward or a call option), a customer does not obtain control of the asset because the customer is limited in its ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset even though the customer may have physical possession of the asset. Consequently, the entity shall account for the contract as either of the following: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in accordance with Ind AS 109. ] B71 To determine whether a customer has a significant economic incentive to exercise its right, an entity shall consider various factors, including the relationship of the repurchase price to the expected market value of the asset at the date of the repurchase and the amount of time until the right expires. For example, if the repurchase price is expected to significantly exceed the market value of the asset, this may indicate that the customer has a significant economic incentive to exercise the put option. B72 If the customer does not have a significant economic incentive to exercise its right at a price that is lower than the original selling price of the asset, the entity shall account for the agreement as if it were the sale of a product with a right of return as described in paragraphs B20 B27. B73 If the repurchase price of the asset is equal to or greater than the original selling price and is more than the expected market value of the asset, the contract is in effect a financing arrangement and, therefore, shall be accounted for as described in paragraph B68. B74 If the repurchase price of the asset is equal to or greater tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to the customer s site or when the product is shipped, depending on the terms of the contract (including delivery and shipping terms). However, for some contracts, a customer may obtain control of a product even though that product remains in an entity s physical possession. In that case, the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the product even though it has decided not to exercise its right to take physical possession of that product. Consequently, the entity does not control the product. Instead, the entity provides custodial services to the customer over the customer s asset. B81 In addition to applying the requirements in paragraph 38, for a customer to have obtained control of a product in a bill-and-hold arrangement, all of the following criteria must be met: (a) the reason for the bill-and-hold arrangement must be substantive (for example, the customer has requested the arrangement); (b) the product must be identified separately as belonging to the customer; (c) the product currently must be ready for physical transfer to the customer; and (d) the entity cannot have the ability to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If an entity delivers products to a customer for trial or evaluation purposes and the customer is not committed to pay any consideration until the trial period lapses, control of the product is not transferred to the customer until either the customer accepts the product or the trial period lapses. Disclosure of disaggregated revenue B87 Paragraph 114 requires an entity to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Consequently, the extent to which an entity s revenue is disaggregated for the purposes of this disclosure depends on the facts and circumstances that pertain to the entity s contracts with customers. Some entities may need to use more than one type of category to meet the objective in paragraph 114 for disaggregating revenue. Other entities may meet the objective by using only one type of category to disaggregate revenue. B88 When selecting the type of category (or categories) to use to disaggregate revenue, an entity shall consider how information about the entity s revenue has been presented for other purposes, incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Errors , subject to the expedients in paragraph C5; or (b) retrospectively with the cumulative effect of initially applying this Standard recognised at the date of initial application in accordance with paragraphs C7 C8. C4 Notwithstanding the requirements of paragraph 28 of Ind AS 8, when this Standard is first applied, an entity need only present the quantitative information required by paragraph 28(f) of Ind AS 8 for the accounting period immediately preceding the first annual period for which this Standard is applied (the immediately preceding period ) and only if the entity applies this Standard retrospectively in accordance with paragraph C3(a). An entity may also present this information for the current period or for earlier comparative periods, but is not required to do so. C5 An entity may use one or more of the following practical expedients when applying this Standard retrospectively in accordance with paragraph C3(a): (a) for completed contracts, an entity need not restate contracts that: (i) begin and end within the same accounting period; or (ii) are completed contracts at the beginning of the earliest period presented. (b) for completed contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period presented; or (b) for all contract modifications that occur before the date of initial application. If an entity uses this practical expedient, the entity shall apply the expedient consistently to all contracts and disclose the information required by paragraph C6. C8 For reporting periods that include the date of initial application, an entity shall provide both of the following additional disclosures if this Standard is applied retrospectively in accordance with paragraph C3(b): (a) the amount by which each financial statement line item is affected in the current reporting period by the application of this Standard as compared to Ind AS 11 and Ind AS 18 ; and (b) an explanation of the reasons for significant changes identified in C8(a). C8A * C9 * Withdrawal of other Standards C10 This Standard supersedes the following Standards: (a) Ind AS 11, Construction Contracts ; (b) Ind AS 18, Revenue Appendix D Service Concession Arrangements This appendix is an integral part of the Standard. Background 1 Infrastructure for public services-such as roads, bridges, tunnels, prisons, hospitals, airports, water distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which party initially financed it. Scope 4 This Appendix gives guidance on the accounting by operators for public-to-private service concession arrangements. 5 This Appendix applies to public-to-private service concession arrangements if: (a) the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and (b) the grantor controls-through ownership, beneficial entitlement or otherwise-any significant residual interest in the infrastructure at the end of the term of the arrangement. 6 Infrastructure used in a public-to-private service concession arrangement for its entire useful life (whole of life assets) is within the scope of this Appendix if the conditions in paragraph 5(a) of this Appendix are met. Paragraphs AG1 AG8 of the Application Guidance of this Appendix provide guidance on determining whether, and to what extent, public-to-private service concession arrangements are within the scope of this Appendix. 7 This Appendix applies to both: (a) infrastructure that the operator constructs or acquires from a third party for the purpose of the service arrangement; an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible asset is detailed in paragraphs 23 26 of this Appendix. Construction or upgrade services 14 The operator shall account for construction or upgrade services in accordance with Ind AS 115. Consideration given by the grantor to the operator 15 If the operator provides construction or upgrade services the consideration received or receivable by the operator shall be recognised in accordance with Ind AS 115. The consideration may be rights to: (a) a financial asset, or (b) an intangible asset. 16 The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services; the grantor has little, if any, discretion to avoid payment, usually because the agreement is enforceable by law. The operator has an unconditional right to receive cash if the grantor contractually guarantees to pay the operator (a) specified or determinable amounts or (b) the shortfall, if any, between amounts received from users of the public service and specified or determinable amounts, even if payment is contingent on the operator ensuri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the arrangement shall be capitalised during the construction phase of the arrangement in accordance with that Standard. Financial asset 23 Ind ASs 32,107 and 109 apply to the financial asset recognised under paragraphs 16 and 18 of this Appendix. 24 The amount due from or at the direction of the grantor is accounted for in accordance with Ind AS 109 as measured at: (a) amortised cost; (b) fair value through other comprehensive income; or (c) fair value through profit or loss. 25 If the amount due from the grantor is measured at amortised cost or fair value through other comprehensive income, Ind AS 109 requires interest calculated using the effective interest method to be recognised in profit or loss. Intangible asset 26 Ind AS 38 applies to the intangible asset recognised in accordance with paragraphs 17 and 18 of this Appendix. Paragraphs 45 47 of Ind AS 38 provide guidance on measuring intangible assets acquired in exchange for a non-monetary asset or assets or a combination of monetary and non-monetary assets. Items provided to the operator by the grantor 27 In accordance with paragraph 11 of this Appendix, infrastructure items t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied to the substance of the agreement. Non-substantive features, such as a cap that will apply only in remote circumstances, shall be ignored. Conversely, if for example, a contract purports to give the operator freedom to set prices, but any excess profit is returned to the grantor, the operator s return is capped and the price element of the control test is met. AG4 For the purpose of condition (b), the grantor s control over any significant residual interest should both restrict the operator s practical ability to sell or pledge the infrastructure and give the grantor a continuing right of use throughout the period of the arrangement. The residual interest in the infrastructure is the estimated current value of the infrastructure as if it were already of the age and in the condition expected at the end of the period of the arrangement. AG5 Control should be distinguished from management. If the grantor retains both the degree of control described in paragraph 5(a) of Appendix D and any significant residual interest in the infrastructure, the operator is only managing the infrastructure on the grantor s behalf-even though, in many cases, it may have wide managerial discreti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, Appendix D. The table sets out the typical types of arrangements for private sector participation in the provision of public sector services and provides references to Indian Accounting Standards that apply to those arrangements. The list of arrangements types is not exhaustive. The purpose of the table is to highlight the continuum of arrangements. It is not Appendix D s intention to convey the impression that bright lines exist between the accounting requirements for public-to-private arrangements TABLE Appendix E Service Concession Arrangements : Disclosures This Appendix is an integral part of the Standard. Issue 1 An entity (the operator) may enter into an arrangement with another entity (the grantor) to provide services that give the public access to major economic and social facilities. The grantor may be a public or private sector entity, including a governmental body. Examples of service concession arrangements involve water treatment and supply facilities, motorways, car parks, tunnels, bridges, airports and telecommunication networks. Examples of arrangements that are not service concession arrangements include an ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide or rights to expect provision of services; (iii) obligations to acquire or build items of property, plant and equipment; (iv) obligations to deliver or rights to receive specified assets at the end of the concession period; (v) renewal and termination options; and (vi) other rights and obligations (eg major overhauls); (d) changes in the arrangement occurring during the period; and (e) how the service arrangement has been classified. 6A An operator shall disclose the amount of revenue and profits or losses recognized in the period on exchanging construction services for a financial asset or an intangible asset. 7 The disclosures required in accordance with paragraph 6 of this Appendix shall be provided individually for each service concession arrangement or in aggregate for each class of service concession arrangements. A class is a grouping of service concession arrangements involving services of a similar nature (eg toll collections, telecommunications and water treatment services). Appendix F References to matters contained in other Indian Accounting Standards This appendix is an integral part of the Ind AS. This appendix lists ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Indian context as the same refer to application of these amendments in case where IFRS 15 was initially applied before issuance of amendments to the standard. (b) Paragraph C9 refers to application of IAS 39, Financial Instruments, which is not relevant in Indian context. ] 13 [ (c) Paragraphs 28 and 28E of Appendix D are not relevant in Indian context as the same relate to effective date of IFRIC 12. ] 14 [ 7. Paragraph B57 of Appendix B of IFRS 15 and paragraphs 28A-28C of IFRIC 12 appear as 'Deleted'. However, in order to maintain consistency with paragraph numbers of IFRS 15 and IFRIC 12, the paragraph numbers are retained in Ind AS 115. ] ] ******************** Notes:- 1. Inserted vide F. No. 01/01/2009-CL-V(Part VI) Dated 28-03-2018 , w.e.f. 1st day of April, 2018 2. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as (a) lease contracts within the scope of Ind AS 17, Leases ; 3. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as (c) all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intangible assets). However, a service concession arrangement may involve executory contracts that are not addressed in Indian Accounting Standards, unless the contracts are onerous, in which case Ind AS 37 applies. Therefore, this Appendix addresses additional disclosures of service concession arrangements. 9. Omitted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as 1 Appendix B, Evaluating the Substance of Transactions involving the Legal Form of a Lease contained in Ind AS 17, Leases. 10. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as 6. Paragraphs C1A, C1B, C8A and C9 related to effective date and transition have been deleted due to following reasons: (a) Paragraph C1A refers to amendments in paragraphs 5, 97, B66 and B70 due to issuance of IFRS 16, Leases for which corresponding Ind AS is under formulation. (b) Paragraphs C1B and C8A are not relevant in Indian context as the same refer to application of these amendments in case where IFRS 15 was initially applied before issuance of amendments t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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