IFRS 15 Part 2 Performance Obligations Satisfied Over Time

IFRS 15
Revenue from Contracts with

Customers: Session 2
Slides prepared and presented
By
Nelson Pande.
Lecture objective….
1. Performance obligations satisfied over time.
2. Describe acceptable methods for measuring
progress
3. Explain and apply criteria for recognition of
contract costs
4. Exam type questions
Contracts where
performance obligations
are satisfied over time
For a performance obligation satisfied over time,
an entity would select an appropriate measure of
progress to determine how much revenue should
be recognised as the performance obligation is
satisfied.
Measuring progress
Output Methods Input Methods

STATEMENT OF
PROFIT OR LOSS
REVENUE COST OF SALES PROFIT
STATEMENT OF
FINANCIAL POSITION
CONTRACT
RECEIVABLE ASSET / LIABILTY
•Amounts •Costs to date plus or
minus recognised
invoiced less
profits or losses less
payment amounts invoiced to
received customers
Example
Ripsaw is an entity preparing its financial statements to 30 September
each year. The financial statements for the year ended 30 September
2004 are being prepared and you are provided with the following
information:
Ripsaw entered into a two year contract that commenced on 1

October 2003. Total contract price $125 million.
Amounts invoiced to customers amount to $22 million
Progress payments received to date amounted $10 million. Costs
incurred to date $30 million.
Ripsaw estimate of expected costs to complete to be $45 million
Show extracts of the financial statements for the year ended 30

September 2004
STEPS TO BE FOLLOWED
1. Estimate outcome
2. Calculate the % of completion
3. Do the SOPL
4. Do the SOFP
Practice Question
On 1 January 20X4 Kitana entered into a contract with a
customer to construct a specialised building for an agreed
price of $30 million. At 31 December 20X4, Kitana had
incurred costs of $14 million and estimated that costs to
complete the contract would amount to a further $7 million.
Kitana measures progress towards contract completion using
the input method, based on costs incurred.
At 31 December Kitana invoiced the customer $15 million. A
payment of $12 million was received from the customer.
How should the above contract be reflected in the financial
statements of Kitana for the year ended 31 December 20X4?
WHEN EXPECTED
OUTCOME IS A LOSS
Where a loss is anticipated, this means
that a proportion of the entity's costs
will not be recovered, so the full loss
should be recognised.
Example
The following details are as at the 31
December 20X5 $
Contract price 240 000
Costs to date 103 200
Estimated costs to completion 160 800
Amounts Invoiced and received 76 800
Date started 1.7.20X5
Estimated completion date 30.11.20X6
% complete 35%
Calculate the amounts to be included in the statement of

profit or loss for the year ended 31 December 20X5 and the
statement of financial position as at that date.
WHERE NO PROFIT
CAN BE ESTIMATED
Where no profit can be estimated, revenue
is limited to recoverable costs.
Examination Type
18
Questions
Q1
A company entered into a contract on 1 January 20X5 to
build a factory. The contract price was $2.8 million. At 31
December 20X5 the contract was certified as 35%
complete. Costs incurred during the year were $740,000
and costs to complete are estimated at $1.4 million.
$700,000 has been billed to the customer but not yet paid.
What amount will be shown in the statement of financial
position as at 31 December 20X5 for Receivables?
A $271,000
B $509,000
C $700,000
D $191,000
Q2
A company entered into a contract on 1 January 20X5 to build
a factory. The contract price was $2.8 million. At 31 December
20X5 the contract was certified as 35% complete. Costs
incurred during the year were $740,000 and costs to complete
are estimated at $1.4 million. $700,000 has been billed to the
customer but not yet paid.
What amount will be shown under contract asset or liability in
respect of this contract in the statement of financial position as
at 31 December 20X5?
A $271,000 contract asset
B $509,000 contract asset
C $271,000 contract liability
D $509,000 contract liability
The following scenario relates to questions 3-7
Burtie is in the process of constructing a number of assets
for its customers, the details of which can be found below.
Contract 1: Contract 1 has a price of $8 million and is 40%
complete. Contract 1 is estimated to have total costs of $5
million, of which Burtie has spent $2 million to date. Burtie
has received $1.5 million from the customer to date.
Contract 2: Contract 2 has a price of $7 million and is 60%
complete. Due to rising raw material costs, contract 2 now
has estimated total costs of $9 million.
Contract 3: Contract 3 has a price of $6 million but only
began 1 month ago so its progress cannot be measured.
Burtie has incurred costs to date of $100,000 out of total
estimated costs of $4million, and is expected to take three
years to complete the contract.
What should be recorded in current assets in relation to
contract 1?
A $1.2 million
B $1.7 million
C $2 million
D $3.2 million
What should be recorded in cost of sales in relation to
contract 2?
A $6.2 million
B $9 million
C $4.2 million
D $5.4 million
What should be recorded in revenue in relation to contract
3?
A Nil
B $150,000
C $100,000
D $166,667
Which of the following statements best describes the
contracts in this scenario?
A. Contracts where the performance obligation is not met

B. Contracts where the performance obligation is satisfied
at a point in time
C. Contracts where the performance obligation is
discounted
D. Contracts where the performance obligation is satisfied
over time
Burtie also acts as an agent in other transactions. In
transactions where Burtie acted as the agent, Burtie has
received $5 million. Burtie earns commission at 20%.
Which of the following statements is NOT correct in relation

to this transaction?
A. Burtie’s revenue consists of the commission only

B. Income of $1 million should be recognized
C. $4 million should be held in trade payables
D. $4 million should be recorded in cost of sales

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IFRS 15

Revenue from Contracts with

Output Methods Input Methods

Ripsaw entered into a two year contract that commenced on 1

Show extracts of the financial statements for the year ended 30

Calculate the amounts to be included in the statement of

A. Contracts where the performance obligation is not met

Which of the following statements is NOT correct in relation

A. Burtie’s revenue consists of the commission only

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