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You need to have some rules on WHEN to recognize the revenue from all these things, because all your profits and losses, your reputation in front of the outside world and your taxes depend on this. IFRS 15 defines a contract as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.

It means that under new IFRS 15, telecom operator must allocate a Thank you later of the revenue from prepayment plan with free handset to the sale of handset, Thank you later. Identify the performance obligations in the contract. For a contract that has more than one performance obligation, an entity should allocate the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for satisfying each performance obligation.

Finally, these 2 standards came closer and tried to solve all these differences on 28 May Click here to check it out!

Well, because under new IFRS 15, the transaction price must be allocated to the individual performance obligations in the contract and recognized when these obligations are delivered or fulfilled. Identify the contract s with a customer.

Recognize revenue when or as the entity satisfies a performance obligation. Some companies identified these components, but then limited the revenue allocated to the sale of handset to the amount received from customer zero in this case.

IFRS 15 contains guidance for transactions not previously addressed service revenue, contract modifications ; IFRS 15 improves guidance for multiple-element arrangements; IFRS 15 requires enhanced disclosures about revenue.

When to recognize revenue? Under IAS 18, the revenue is defined as a gross inflow of economic benefits arising from ordinary operating activities of an entity.

Determine the transaction price. Allocate the transaction price to the performance obligations in the contract. Under the new model, companies in telecom and software will probably recognize revenue earlier than under older rules.

Obligation to deliver a handset Obligation to deliver network services over 1 year The transaction price step 3 is CU 1calculated as monthly fee of CU times 12 months. The cost of handset is recognized to profit or loss and effectively, ABC treats that as a cost of acquiring new customer.

The journal entry is to debit receivables or cash and credit revenues with CU Then, ABC needs to identify all performance obligations from the contract with Johnny step 2 in a 5-step model: As you know, IAS 18 Revenue contains principles for revenue recognition, but they are quite broad and as a result, many companies use their judgment to apply them in their specific situation.

Revenue from monthly plan is recognized on a monthly basis. It means that if the operator gives a handset for free with the prepayment plan, then the revenue from handset is 0.

The transaction price is the amount of consideration for example, payment 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.

A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.

The experts say that the most impacted industries are telecom, software development, real estate and other industries with long-term contracts.

The terms of Thank you later are as follows: Now, ABC needs to allocate that transaction price of CU 1 to individual performance obligations under the contract based on their relative stand-alone selling prices or their estimates — this is step 4. For example, telecom companies recognized revenue from the sale of monthly plans in full as the service was provided, and no revenue for handset — they treated the cost of handset as the cost of acquiring the customer.

Johnny receives a free handset at the inception of the plan. However, IAS 18 does not give any guidance on how to identify these components and how to allocate selling price and as a result, there were different practices applied.

To apply this principle, you need to follow a five-step model framework described below.The Universal Service Administrative Company (USAC) is dedicated to achieving universal service. As a not-for-profit corporation designated by the Federal Communications Commission (FCC), we administer the $10 billion Universal Service Fund.

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IFRS 15 vs. IAS 18: Huge Change Is Here!

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