IFRS 15 Lecture 2

IFRS 15 –
REVENUE FROM
CONTRACTS WITH
CUSTOMERS
PRESENTER: AHMED TANVEER, ACA
LECTURE 2
WHAT AREAS ARE WE GOING TO COVER TODAY?
Case Study – Identify the
Late Payment performance
Surcharge (LPS) obligations (POs)
Identify the Meaning of

contract distinct
Five Step Model

of Revenue
Main POs – Telco
Sector Case
Recognition Areas Study
2
5-STEP APPROACH TO REVENUE RECOGNITION
Can you recall the 5-step

approach to revenue
recognition?
3
5-STEP APPROACH TO REVENUE RECOGNITION
01 02 03 04 05
Identify the Identify the Determine Allocate the Recognise

contract performance the transaction revenue as
obligations transaction price to and when
price performance performance
obligations obligations
are satisfied
4
STEP 1
IDENTIFY THE CONTRACT
Conditions for a contract to exist
it is probable
that the entity
the parties to
will collect the
the contract the entity can the entity can
consideration
have approved identify each identify the
the contract to which it will
the contract party’s rights payment
has be entitled in
and are regarding the terms for the
commercial exchange for
committed to goods or goods or
substance, and the goods or
perform their services to be services to be
services that
respective transferred transferred
will be
obligations
transferred to
the customer.
ILLUSTRATION
Wisdom has a year-end of 31 December 2022. On 30 September 2022, Wisdom
signed a contract with a customer to provide him with an asset on 31 December
2022. Control over the asset is passed to the customer on 31 December 2022.
The customer will pay Rs. 15,000,000 on 30 June 2023.
By 31 December 2022, Wisdom did not believe that it was probable that it
would collect the consideration that it was entitled to. Therefore, the contract
cannot be accounted for, and no revenue should be recognised.
SUI SOUTHERN GAS COMPANY (SSGC) CASE STUDY –
ANNUAL REPORT 2022 – NOTE 31.2
As Pakistan Steel Mills Corporation (Private) Limited (PSML) has been defaulting
and not making payment of Late Payment Surcharge (LPS), the Company
effective from July 01, 2012 decided to account for LPS from PSML on receipt
basis based on the opinions from firms of Chartered Accountants.
In accordance with the revised accounting treatment, the trade debts includes
Rs. 25,312 million (2021: Rs. 24,699 million) including overdue balance of
Rs.25,231 million (2021: Rs. 24,622 million) receivable from PSML. However, the
aggregate legal claim of the Company from PSML amounts to Rs. 82,214 million
(2021: Rs. 74,417 million). This amount has been arrived at as per the practice
of the Company to charge LPS to customers who do not make timely payments.
STEP 2
IDENTIFY THE PERFORMANCE OBLIGATIONS
IDENTIFY THE PERFORMANCE
OBLIGATIONS
Performance
Obligation
Promise to
transfer
distinct good or
service
10
Distinct
Distinct in the context of
Capable of being distinct
the contract
The good or service must be able to

The promise to transfer the good or
benefit the customer, whether this
service must be able to be
can be achieved on its own or by
separately identifiable from the
combining it with other resources
other promises within the contract
that are available to the customer
11
The following factors identify whether goods and services
are separately identifiable
A significant service The good or service The good or service

of integrating the does not is not highly
good or service with significantly modify dependent on or
other goods or or customise highly interrelated
services promised in another good or with other goods or
the contract is not service promised in services promised in
provided the contract the contract.
12
ILLUSTRATION – SOFTWARE DEVELOPMENT
An entity, a software developer, enters into a contract with a customer to transfer:
1. A software licence.
2. An installation service (includes changing the web screen for each user).
3. Software updates.
4. Technical support for 2 years.
The entity sells the above separately. The installation service is routinely performed by
other entities and does not significantly modify the software. The software remains
functional without the updates and the technical support.
Source: Wiley Interpretation of IFRS 13

ILLUSTRATION – SOFTWARE DEVELOPMENT (CONTINUED)
The software is delivered before the other goods or services and remains functional
without the updates and the technical support, therefore the entity concludes that the
customer can benefit from each of the goods and services either on their own or together
with the other goods and services that are readily available.
The promise to transfer each good and service to the customer is separately identifiable
from each other. In particular, the installation service does not significantly modify or
customise the software itself and, as such, the software and the installation service are
separate outputs promised by the entity instead of inputs used to produce a combined
output.
Based on the assessment, four performance obligations in the contract have been
identified for all four of the above goods or services.
Source: Wiley Interpretation of IFRS 14

ILLUSTRATION - TELECOMMUNICATIONS
Ufone offers a super card bundle to its customers, under which it offers the following to its
customers for Rs. 1,099/-
• Unlimited U-U & PTCL minutes
• 350 Off-Net minutes
• 4,500 SMS
• 10 GB Internet
How many performance obligations are there in the sale of a super card by Ufone?
15
PAKISTAN TELECOMMUNICATIONS COMPANY LIMITED
(PTCL) - ANNUAL REPORT 2023 – NOTE 5.19
Revenue is measured at an amount that reflects the consideration to which the Company expects to be
entitled in exchange for transferring promised goods or services to a customer, excluding amounts
collected on behalf of third parties.
Revenue is recognized when the Company satisfies the performance obligations by transferring a
promised good or service to a customer. Goods or services are transferred when the customer obtains
control of the assets.
The Company mainly generates revenue from providing telecommunication services such as data, voice,
Internet Protocol Television (IPTV), connectivity services, interconnect, Information and Communication
Technology (ICT), digital solutions and equipment sales etc. Services are offered separately and as
bundled packages along with other services and / or devices.
For bundled packages, the Company accounts for individual products and services separately if they are
distinct i.e. if a product or service is separately identifiable from other items in the bundled package and if
a customer can benefit from it. The consideration is allocated between separate product and services (i.e.
distinct performance obligations, “POs”) in a bundle based on their stand-alone selling prices.
16
QUESTIONS
AND ANSWERS
FOR ANY FURTHER QUESTIONS
My LinkedIn ID Email Address
ahmedrazatanveer2
@gmail.com

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IFRS 15 –

Identify the Meaning of

Five Step Model

Can you recall the 5-step

Identify the Identify the Determine Allocate the Recognise

The good or service must be able to

A significant service The good or service The good or service

Source: Wiley Interpretation of IFRS 13

Source: Wiley Interpretation of IFRS 14

My LinkedIn ID Email Address

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