HKFRS 15 - Revenue from Contracts with Customers (Condensed)

Introduction & Overview

Core Principle

An entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Standards Superseded

• HKAS 11 Construction Contracts
• HKAS 18 Revenue
• HK(IFRIC)-Int 13, 15, 18
• HK(SIC)-Int 31

Scope Exclusions (para 5)

• Lease contracts (HKFRS 16)
• Insurance contracts (HKFRS 4)
• Financial instruments (HKFRS 9, 10, 11, HKAS 27, 28)
• Non-monetary exchanges between entities in same line of business to facilitate sales

Five-Step Model

Step 1: Identify the Contract

Contract Criteria (para 9) – ALL must be met

1. Parties have approved the contract and are committed to perform
2. Entity can identify each party's rights regarding goods/services
3. Entity can identify payment terms
4. Contract has commercial substance
5. It is probable that the entity will collect the consideration

Contract Combination (para 17)

Combine contracts entered into at or near the same time with the same customer if any of: (a) negotiated as a package with single commercial objective, (b) consideration depends on other contract, (c) goods/services are a single performance obligation.

Contract Modifications (paras 18-21)

Step 2: Identify Performance Obligations

Definition (para 22)

A performance obligation is a promise to transfer to the customer either: (a) a good or service (or bundle) that is distinct, OR (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer.

Distinct Criteria (para 27) – BOTH must be met

1. Capable of being distinct: Customer can benefit from the good/service on its own or with other readily available resources.
2. Distinct within the context of the contract: The promise is separately identifiable from other promises.

Indicators of NOT being separately identifiable (para 29)

• Entity provides a significant service of integrating goods/services into a combined output
• One or more goods/services significantly modifies or customises others
• Goods/services are highly interdependent or interrelated

Step 5: Satisfy Performance Obligations

Core Rule (para 31)

Recognise revenue when (or as) the entity satisfies a performance obligation by transferring control of a promised good or service to the customer.

Over Time Criteria (para 35) – any ONE

1. Customer simultaneously receives and consumes benefits as entity performs
2. Entity's performance creates/enhances an asset that customer controls
3. Entity's performance does NOT create an asset with alternative use AND entity has enforceable right to payment for performance completed to date

Point in Time Indicators (para 38)

• Entity has present right to payment
• Customer has legal title
• Entity has transferred physical possession
• Customer has significant risks and rewards of ownership
• Customer has accepted the asset

Measuring Progress (paras 39-45)

Step 3: Determine Transaction Price

Definition (para 47)

The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties.

Components (para 48)

• Variable consideration
• Constraining estimates of variable consideration
• Significant financing component
• Non-cash consideration
• Consideration payable to a customer

Variable Consideration (paras 50-59)

Significant Financing Component (paras 60-65)

Adjust for time value of money if timing of payments provides a significant benefit of financing. Practical expedient: No adjustment needed if period is one year or less (para 63).

Consideration Payable to a Customer (paras 70-72)

Account as a REDUCTION of transaction price (and revenue) UNLESS the payment is in exchange for a distinct good or service from the customer.

Step 4: Allocate Transaction Price

General Approach (para 74)

Allocate on a relative stand-alone selling price basis, except as specified for discounts and variable consideration.

Estimation Methods for Stand-Alone Selling Price (para 79)

Allocation of Discount (paras 81-83)

Allocate discount proportionately to ALL performance obligations UNLESS observable evidence indicates discount relates to only one or more specific obligations.

Allocation of Variable Consideration (paras 84-86)

Variable consideration may be allocated entirely to one or more specific performance obligations if: (a) terms relate specifically to that obligation, and (b) allocation is consistent with the objective.

Changes in Transaction Price (paras 87-90)

Allocate subsequent changes on the same basis as at contract inception. Do NOT reallocate to reflect changes in stand-alone selling prices.

Contract Costs

Incremental Costs of Obtaining a Contract (paras 91-94)

Recognise as an asset if the entity expects to recover those costs. Practical expedient: May expense if amortisation period is one year or less (para 94).

Costs to Fulfil a Contract (paras 95-98)

Recognise an asset ONLY if ALL of the following are met:

1. Costs relate directly to a contract or specifically identifiable anticipated contract
2. Costs generate or enhance resources that will be used in satisfying future performance obligations
3. Costs are expected to be recovered

Amortisation and Impairment (paras 99-104)

Amortisation: On a systematic basis consistent with the transfer of goods/services to which the asset relates (para 99).

Impairment: Recognise loss to the extent carrying amount exceeds remaining consideration less costs that relate directly to providing those goods/services (para 101).

Presentation & Disclosure

Presentation (paras 105-109)

Disclosure (paras 110-129)

Objective: Disclose sufficient information to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows.

Required Disclosures

• Contracts with customers: Revenue disaggregation, contract balances, performance obligations, remaining performance obligations
• Significant judgements: Timing of satisfaction, transaction price and allocation
• Assets from contract costs: Judgements, amortisation method, closing balances, impairment losses