• The entity receives the cash on 1 March 20X9:
Cash £1,000
Receivable £1,000
• The entity satisfies the performance obligation on 31 March 20X9:
Contract liability
£1,000
Revenue £1,000
If the entity issued the invoice before 31 January 20X9 (the due date of the consideration), the entity would
not present the receivable and the contract liability on a gross basis in the statement of financial position
because the entity does not yet have a right to consideration that is unconditional.
The standard includes another example of presentation of contract balances that
illustrates when an entity has satisfied a performance obligation, but does not have an
unconditional right to payment and, therefore, recognises a contract asset.
[IFRS 15.IE201-IE204].
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Example 28.97: Contract asset recognised for the entity's performance
On 1 January 20X8, an entity enters into a contract to transfer Products A and B to a customer in exchange
for $1,000. The contract requires Product A to be delivered first and states that payment for the delivery
of Product A is conditional on the delivery of Product B. In other words, the consideration of $1,000 is
due only after the entity has transferred both Products A and B to the customer. Consequently, the entity
does not have a right to consideration that is unconditional (a receivable) until both Products A and B are
transferred to the customer:
The entity identifies the promises to transfer Products A and B as performance obligations and allocates $400
to the performance obligation to transfer Product A and $600 to the performance obligation to transfer Product
B on the basis of their relative stand-alone selling prices. The entity recognises revenue for each respective
performance obligation when control of the product transfers to the customer.
The entity satisfies the performance obligation to transfer Product A:
Contract asset $400
Revenue $400
The entity satisfies the performance obligation to transfer Product B and to recognise the unconditional right
to consideration:
Receivable $1,000
Contract asset $400
Revenue $600
Unless an entity presents its statement of financial position on a liquidity basis, it needs
to present contract assets or contract liabilities as current or non-current in the
statement of financial position. Since IFRS 15 does not address this classification,
entities need to consider the requirements in IAS 1.
The distinction between current and non-current items depends on the length of the
entity’s operating cycle. IAS 1 states that the operating cycle of an entity is the time
between the acquisition of assets for processing and their realisation in cash or cash
equivalents. However, when the entity’s normal operating cycle is not clearly
identifiable, it is assumed to be 12 months. IAS 1 does not provide guidance on how to
determine whether an entity’s operating cycle is ‘clearly identifiable’. For some entities,
the time involved in producing goods or providing services may vary significantly
between contracts with one customer to another. In such cases, it may be difficult to
determine what the normal operating cycle is. Therefore, entities need to consider all
facts and circumstances and use judgement to determine whether it is appropriate to
consider that the operating cycle is clearly identifiable, or whether to use the twelve-
month default. This assessment is also relevant for other assets and liabilities arising
from contracts with customers within the scope of IFRS 15 (e.g. capitalised contract
costs to obtain and fulfil a contract).
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Consequently, an entity assesses, based on the contract terms, facts and
circumstances whether a contract asset or contract liability is classified as current or
non-current. It considers:
• for a contract asset: when payment is due (e.g. based on payment schedule agreed
with client); and
• for a contract liability: when the entity expects to satisfy its performance obligation(s).
This assessment might lead to a separation of the contract asset or contract liability into
a current and a non-current portion.
In Extract 28.2, Fédération Internationale de Football Association (FIFA) splits contract
liabilities between current and non-current in its balance sheet and uses the terms from
the standard.
Extract 28.2: Fédération Internationale de Football Association (2017)
CONSOLIDATED BALANCE SHEET [Extract]
in TUSD
Note
31 Dec 2017
31 Dec 2016
Liabilities and reserves
Payables 21
130,081
73,668
Derivative financial liabilities
27
12,681
2,458
Contract liabilities
23
2,392,143 1,237,600
Accrued expenses
22
520,333
480,538
Current liabilities
3,055,238 1,794,264
Contract liabilities
23
89,309
86,069
Accrued expenses
22
70,638
73,220
Post-employment benefit obligation
28
74,333
87,602
Derivative financial liabilities
27
322
255
Provisions 24
197,000
261,998
Non-current liabilities
431,602 509,144
Total liabilities
3,486,840
2,303,408
After initial recognition, receivables and contract assets are subject to impairment
assessments in accordance with IFRS 9 (the impairment requirements are discussed in
Chapter 47). [IFRS 15.107]. In addition, if upon initial measurement there is a difference
between the measurement of the receivable under IFRS 9 and the corresponding amount
of revenue, that difference is presented immediately in profit or loss (e.g. as an impairment
loss). [IFRS 15.108]. IFRS 9 includes different initial measurement requirements for receivables
arising from IFRS 15 contracts depending on whether there is a significant financing
component. If there is a significant financing component, the receivable is initially measured
at fair value. [IFRS 9.5.1.1]. If there is no significant financing component (or the entity has used
the practical expedient in paragraph 63 of IFRS 15), the receivable is initially recognised at
the transaction price, measured in accordance with IFRS 15. [IFRS 9.5.1.3].
If the initial measurement of a receivable is at fair value, there may be a number of reasons
why differences from the IFRS 15 transaction price may arise (e.g. changes in the fair value
of non-cash consideration not yet received). This is the case when the difference is
attributable to customer credit risk, rather than an implied price concession. Implied price
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concessions are deducted from the contract price to derive the transaction price, which
is the amount recognised as revenue. Distinguishing between implied price concessions
/> and expense due to customer credit risk requires judgement (see 6.2.1.A above).
Impairment losses resulting from contracts with customers are presented separately from
other impairment losses. [IFRS 15.113(b)].
An entity could also have recognised other assets related to contracts with a customer
(e.g. the incremental costs of obtaining the contract and other costs incurred that meet
the criteria for capitalisation). The standard requires that any such assets be presented
separately from contract assets and contract liabilities in the statement of financial
position or disclosed separately in the notes to the financial statements (assuming that
they are material). These amounts are also assessed for impairment separately
(see 10.3.4 above).
11.1.1
Implementation questions on presentation of contract assets and
liabilities
11.1.1.A
Determining the presentation of contract assets and liabilities for
contracts that contain multiple performance obligations
At the October 2014 TRG meeting, the TRG members were asked how an entity would
determine the presentation of contract assets and liabilities for contracts that contain
multiple performance obligations. The TRG members generally agreed that contract
assets and liabilities would be determined at the contract level and not at the
performance obligation level. That is, an entity does not separately recognise an asset
or liability for each performance obligation within a contract, but aggregates them into
a single contract asset or liability.148
This question arose in part because, under the standard, the amount and timing of
revenue recognition is determined based on progress toward complete satisfaction of
each performance obligation. Therefore, some constituents questioned whether an
entity could have a contract asset and a contract liability for a single contract. An
example is when the entity has satisfied (or partially satisfied) one performance
obligation in a contract for which consideration is not yet due, but has received a
prepayment for another unsatisfied performance obligation in the contract. The TRG
members generally agreed that the discussion in the Basis for Conclusions was clear that
contract asset or contract liability positions are determined for each contract on a net
basis. This is because the rights and obligations in a contract with a customer are
interdependent – the right to receive consideration from a customer depends on the
entity’s performance and, similarly, the entity performs only as long as the customer
continues to pay. The Board decided that those interdependencies are best reflected by
accounting and presenting contract assets or liabilities on a net basis. [IFRS 15.BC317].
After determining the net contract asset or contract liability position for a contract,
entities consider the requirements in IAS 1 on classification as current or non-current in
the statement of financial position, unless an entity presents its statement of financial
position on a liquidity basis (see 11.1 above).
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11.1.1.B
Determining the presentation of two or more contracts that are required
to be combined under the standards
At the October 2014 TRG meeting, the TRG members considered how an entity would
determine the presentation of two or more contracts that are required to be combined
under the standard. The TRG members generally agreed that the contract asset or liability
would be combined (i.e. presented net) for different contracts with the same customer (or
a related party of the customer) if an entity is otherwise required to combine those
contracts under the standard (see 4.3 above for discussion of the criteria for combining
contracts).149 When two or more contracts are required to be combined under the
standard, the rights and obligations in the individual contracts are interdependent.
Therefore, as discussed at 11.1.1.A above, this interdependency is best reflected by
combining the individual contracts as if they were a single contract. However, the TRG
members acknowledged that this analysis may be operationally difficult for some entities
because their systems may capture data at the performance obligation level in order to
comply with the recognition and measurement aspects of the standard.
11.1.1.C
Offsetting contract assets and liabilities against other statement of
financial position items (e.g. accounts receivable)
At the October 2014 TRG meeting, the TRG members considered when an entity would
offset contract assets and liabilities against other statement of financial position items
(e.g. accounts receivable). The TRG members generally agreed that, because the
standard does not provide requirements for offsetting, entities need to apply the
requirements of other standards to determine whether offsetting is appropriate (e.g.
IAS 1, IAS 32).150 For example, if an entity has a contract asset (or a receivable) and a
contract liability from separate contracts with the same customer (that are not required
to be combined under the standard), the entity needs to look to requirements outside
IFRS 15 to determine whether offsetting is appropriate.
11.1.1.D
Is a refund liability a contract liability (and, thus, subject to the
presentation and disclosure requirements of a contract liability)?
An entity needs to determine whether a refund liability is characterised as a contract
liability based on the specific facts and circumstances of the arrangement. We believe
that a refund liability typically does not meet the definition of a contract liability. When
an entity concludes that a refund liability is not a contract liability, it presents the refund
liability separately from any contract liability (or asset) and the refund liability is not
subject to the disclosure requirements in paragraphs 116-118 of IFRS 15 discussed
at 11.4.1 below.
When a customer pays consideration (or consideration is unconditionally due) and the
entity has an obligation to transfer goods or services to the customer, the entity recognises
a contract liability. When the entity expects to refund some or all of the consideration
received (or receivable) from the customer, it recognises a refund liability. A refund liability
generally does not represent an obligation to transfer goods or services in the future. Similar
to receivables (which are considered a subset of contract assets), refund liabilities could be
considered a subset of contract liabilities. We believe refund liabilities are also similar to
receivables in that they are extracted from the net contract position and presented
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separately (if material). This conclusion is consistent with the standard’s specific
requirement to present the corresponding asset for expected returns separately. [IFRS 15.B25].
If an entity concludes, based on its specific facts and circumstances, that a refund
liability represents an obligation to transfer goods or services in the future, the refund
liability is a contract liability subject to the disclosure requirements in
paragraphs 116-118 of IFRS 15. In addition, in that situation, the entity presents a single
net contract liability or asset (i.e. including the refund liabil
ity) determined at the
contract level, as discussed at 11.1.1.A above.
11.1.1.E
Accounting for a contract asset that exists when a contract is modified if
the modification is treated as the termination of an existing contract and
the creation of a new contract
How would an entity account for a contract asset that exists when a contract is modified
if the modification is treated as the termination of an existing contract and the creation
of a new contract? The FASB TRG members generally agreed that a contract asset that
exists when a contract is modified would be carried forward into the new contract if the
modification is treated as the termination of an existing contract and the creation of a
new contract.
Some stakeholders questioned the appropriate accounting for contract assets when this
type of modification occurs because the termination of the old contract could indicate
that any remaining balances associated with the old contract must be written off.
FASB TRG members generally agreed that it is appropriate to carry forward the related
contract asset in such modifications because the asset relates to a right to consideration
for goods or services that have already been transferred and are distinct from those to
be transferred in the future. As such, the revenue recognised to date is not reversed and
the contract asset continues to be realised as amounts become due from the customer
and are presented as a receivable. The contract asset that remains on the entity’s
statement of financial position at the date of modification continues to be subject to
evaluation for impairment under IFRS 15.151
While the FASB TRG members did not discuss this point, we believe a similar
conclusion would be appropriate when accounting for an asset created under IFRS 15,
such as capitalised commissions which exists immediately before a contract
modification, that is treated as if it were a termination of the existing contract and
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 455
