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Contract modifications and variable consideration

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Contract modifications and variable consideration are discussed on this page.

IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here. Contract modifications and variable consideration

Contract modification

A contract modification arises when the parties approve a change in the scope and/or the price of a … Read more

Output method Measuring progress to completion

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Output method Measuring progress to completion is part of IFRS 15 Revenue from Contracts with Customers (contents page is here), that  introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here.

Step 5 Recognise revenue – measuring progress to completion

This section is part of step 5 Recognise revenue as or when each performance obligation is … Read more

Input method Measuring progress to completion

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Input method Measuring progress to completion is part of IFRS 15 Revenue from Contracts with Customers (contents page is here), which introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here.

Input methods

This section is part of step 5 Recognise revenue as or when each performance obligation is satisfied and the sub-step Measuring progress toward Read more

Revenue Income Contract Customer?

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Revenue Income Contract Customer? is about IFRS 15 ‘Revenue from contracts with customers’. What is revenue?, What is a contract?, and what is a customer? Here are some of the explanations……

What is revenue?

Revenue has stepped reasoning with regards to the definition of revenue. Revenue is defined as ‘Income arising in the course of an entity’s ordinary activities’. It is something but not the end, income on its own is defined as ‘Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants’.

Income has been defined in the Conceptual … Read more

Revenue from Contracts with Customers short version

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Revenue from Contracts with Customers short version – IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue from Contracts with Customers short version

Revenue is now recognised by a vendor when control over the goods or services is transferred to the customer. In contrast, IAS 18 Revenue based revenue recognition around … Read more

Creating a new contract or not?

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Creating a new contract or not – What is a modification of a contract and what is a new contract?

The way chosen in IFRS 15 Revenue from Contracts with Customers is that the general rule is that a modification is a continuation of an existing contract with some changes. To account for a change (modification) in a contract as being a new contract some hurdles have to be taken.

So, an entity must determine whether the modification creates a separate contract or whether it will be accounted for as part of the existing contract.

Two criteria must be met for a modification to be treated as a separate contract:

  • the additional goods and services are distinct
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Construction warranties

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Construction warranties – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts. Construction warranties Construction warranties Construction warranties Construction warranties 


Warranties may fall into several categories. If the contractor provides the customer with the option of purchasing the warranty separately, the warranty should be treated as a distinct performance obligation, and a portion of the transaction price would be allocated to it. Likewise, if the warranty provides additional services (such as a certain number of years of maintenance), that service component qualifies as a distinct performance obligation, and a portion of the transaction price would be … Read more

Extra disclosures IFRS 15 contracts

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Extra disclosures IFRS 15 contracts – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts.


Contract balances

The disclosures related to contract balances are extensive and intended to enable users to understand the relationship between the revenue recognised and changes in overall balances of total Extra disclosures IFRS 15contract assets and liabilities in a particular reporting period.

For example, disclosures required include revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period; revenue recognised in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (e.g., … Read more

Contract assets and contract liabilities

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Contract assets and contract liabilities relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts.


IAS 11 required entities to record contract assets for unbilled accounts receivable when revenue is recognised but not billed. Contract asset is recognised when a performance obligation is satisfied (and revenue recognised), but the payment is conditional not only on the passage of time. The other conditions usually relate to entity’s fulfilment of other performance obligations in the contract. Contract assets are different from trade receivables, because trade receivables represent an unconditional right to receive payment. Once the invoice is submitted to the customer, … Read more

Loss-making or onerous construction contracts

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Loss-making or onerous construction contracts – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts. Loss-making or onerous construction contracts

IFRS 15 does not provide specific guidance on loss-making contracts, which are instead within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The consideration in such cases is that a present obligation exists as a result of a past obligating event—the entity is contractually required to pay out resources for which it will not receive commensurate benefits. So, if an entity has a contract that is onerous, the entity recognises … Read more