IFRS/NFRS 15 Revenue from contract with customersby Yubraj Ghimire.pptx

A quick overview of 5-step approach to IFRS/NFRS 15: Revenue from contract with customer with the practical walkthrough example.

1. IFRS/NFRS 15: Revenue from Contracts with customers Yubraj Ghimire, ACMA,CGMA Revenue

2. The 5-step approach Identify the C ontract Identify the separate performance O bligation within the contract Determine the transaction P rice A llocate transaction price to the performance obligations in the contract R ecognize revenue as a performance obligation is satisfied Mnemonic to remember 5-step: COPAR for revenue recognition

3. Walkthrough Example Practical Application of the 5-Step Approach On 1 Shrawan 2078, TechNepal Pvt. Ltd. receives an order from a customer for a computer and a 12-month technical support. TechNepal delivers the computer (and transfers its legal title) to the customer on the same day. The customer paid Rs. 60,000 upfront. The laptop is sold separately for Rs. 40,000, and the technical support sells for Rs. 20,000. TechNepal's year-end is 31 Shrawan 2078. 5-Step Revenue Recognition: Step 1 – Identify the contract There is a contract between TechNepal and its customer for the provision of both a computer and a technical support. Step 2 – Identify the separate performance obligations within the contract There are two distinct performance obligations in the contract: The supply of a computer The supply of technical support.

4. Walkthrough Example Practical Application of the 5-Step Approach Step 3 – Determine the transaction price The total transaction price agreed upon is Rs. 60,000. Step 4 – Allocate the transaction price to the performance obligations Based on the standalone sales prices: • Rs. 40,000 is allocated to the computer, • Rs. 20,000 is allocated to the technical support. Step 5 – Recognise revenue when (or as) a performance obligation is satisfied • The laptop was delivered on 1 Shrawan 2078, so the full revenue of Rs. 40,000 is recognised on the same day. • The technical support is provided over time, so its revenue will be recognised monthly. By the end of the fiscal year (31 Shrawan 2078), revenue of Rs. 1,667 (1/12 × Rs. 20,000) will be recognised for the provision of the technical support. The remaining amount will be recorded as deferred income and will be recognized as the performance obligation satisfy.