International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 459
($m)
2017
January 1
–
Effect of adoption of IFRS 15
517
advance payments received from customers
1,740
Performance obligations recognised in the period
110
Revenue recognized in the period from:
Amounts included in the contract liability at the beginning of the period
(590)
advance payments applied to current period
(1,317)
Currency translation effects and other
20
December 31
480
At December 31, 2017, contract liabilities for customer loyalty programs are $44 million and will be recognized as revenue as the promised goods and services are transferred to the customers, which is expected to occur over the next three years.
11.4.1.C Performance
obligations
To help users of financial statements analyse the nature, amount, timing and uncertainty
about revenue and cash flows arising from contracts with customers, the Board decided to
require disclosures about an entity’s performance obligations. As noted in the Basis for
Conclusions, legacy IFRS required entities to disclose their accounting policies for
recognising revenue, but users of financial statements had commented that many entities
provided a ‘boilerplate’ description that did not explain how the policy related to the
contracts they entered into with customers. [IFRS 15.BC354]. To address this criticism, IFRS 15
requires an entity to provide more descriptive information about its performance obligations.
2306 Chapter 28
In Extract 28.11 below, Ford Motor Company discloses information about its
performance obligations for ‘Vehicles, Parts, and Accessories’. It describes when it
typically satisfies its performance obligations (i.e. upon shipment) and the obligation for
returns of parts, as well as the guarantee to cover any price risks for vehicles sold to
daily rental companies. It also provides some information about significant estimates
when determining expected returns or stand-alone selling prices.
Extract 28.11: Ford Motor Company (2017) (US GAAP)
NOTES TO THE FINANCIAL STATEMENTS [Extract]
NOTE 4. REVENUE [Extract]
Automotive Segment [Extract]
Vehicles, Parts, and Accessories. For the majority of vehicles, parts, and accessories, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). We receive
cash equal to the invoice price for most vehicle sales at the time of wholesale. When the vehicle sale is financed by
our wholly-owned subsidiary Ford Credit, the dealer pays Ford Credit when it sells the vehicle to the retail customer
(see Note 10). Payment terms on part sales to dealers, distributors, and retailers range from 30 to 120 days. The amount
of consideration we receive and revenue we recognize varies with changes in marketing incentives and returns we
offer to our customers and their customers. When we give our dealers the right to return eligible parts and accessories,
we estimate the expected returns based on an analysis of historical experience. We adjust our estimate of revenue at
the earlier of when the most likely amount of consideration we expect to receive changes or when the consideration
becomes fixed. During 2017, we recognized a decrease to revenue of $372 million related to sales recognized in 2016.
Depending on the terms of the arrangement, we may also defer the recognition of a portion of the consideration
received because we have to satisfy a future obligation (e.g. free extended service contracts). We use an observable
price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach
when one is not available. We have elected to recognize the cost for freight and shipping when control over vehicles,
parts, or accessories have transferred to the customer as an expense in Cost of sales.
We sell vehicles to daily rental companies and guarantee that we will pay them the difference between an agreed
amount and the value they are able to realize upon resale. At the time of transfer of vehicles to the daily rental
companies, we record the probable amount we will pay under the guarantee to Other liabilities and deferred revenue.
As part of its disclosure of information about its performance obligations related to
advertising, Alphabet Inc. provides information about its principal versus agent
assessment (in the last paragraph in Note 2 of its 2017 annual financial statements), as
presented in Extract 28.12 below:
Revenue
2307
Extract 28.12: Alphabet Inc. (2017) (US GAAP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Extract]
Note 2. Revenues [Extract]
Advertising Revenues
We generate revenues primarily by delivering advertising on Google properties and Google Network
Members’ properties.
Google properties revenues consist primarily of advertising revenues generated on Google.com, the Google Search app, and other Google owned and operated properties like Gmail, Google Maps, Google Play, and YouTube.
Google Network Members’ properties revenues consist primarily of advertising revenues generated on Google
Network Members’ properties.
Our customers generally purchase advertising inventory through AdWords, DoubleClick AdExchange, and
DoubleClick Bid Manager, among others.
Most of our customers pay us on a cost-per-click basis (CPC), which means that an advertiser pays us only when a
user clicks on an ad on Google properties or Google Network Members’ properties or views certain YouTube
engagement ads. For these customers, we recognize revenue each time a user clicks on the ad or when a user views
the ad for a specified period of time.
We also offer advertising on other bases such as cost-per-impression (CPM), which means an advertiser pays us based
on the number of times their ads are displayed on Google properties or Google Network Members’ properties. For
these customers, we recognize revenue each time an ad is displayed.
Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration.
We estimate these amounts based on the expected amount to be provided to customers and reduce revenues
recognized. We believe that there will not be significant changes to our estimates of variable consideration.
For ads placed on Google Network Members’ properties, we evaluate whether we are the principal (i.e. report
revenues on a gross basis) or agent (i.e. report revenues on a net basis). Generally, we report advertising revenues
for ads placed on Google Network Members’ properties on a gross basis, that is, the amounts billed to our
customers are recorded as revenues, and amounts paid to Google Network Members are recorded as cost of
revenues. Where we are the principal, we control the advertising inventory before it is transferred to our
customers. Our control is evidenced by our sole ability to monetize the advertising inventory before it is
transferred to our customers, and is further supported by us being primarily responsible to our customers and
having a level of discretion in establishing pricing.
2308 Chapter 28
In its 2017 annual financial statements, Commvault Systems, Inc. provides information
about its performance obligations on a qualitative basis in a tabular for
mat. The first
column details the various performance obligations. The second column provides
information about the satisfaction of these performance obligations. For example, for
software licences, it usually recognises revenue when the software is available for
download, but for its customer support services, it recognises revenue rateably over the
support period. The third column provides details of payment terms and the final
column states how stand-alone selling prices are estimated, which is key for the
allocation of transaction price in bundled contracts.
Extract 28.13: Commvault Systems, Inc. (2017) (US GAAP)
Notes to Consolidated Financial Statements [Extract]
3. Revenue [Extract]
The Company’s typical performance obligations include the following:
Performance Obligation
When Performance
How Standalone Selling
When Payment is
Obligation is Typically
Price is Typically
Typically Due
Satisfied
Estimated
Software and Products Revenue
Software
Licenses
Within 90 days of
Upon shipment or made
shipment except for
available for download
certain subscription
Residual approach
(point in time)
licenses which are paid
for over time
Appliances
When control of the
Within 90 days of
appliances passes to the
delivery except for certain
Residual approach
customer; typically upon
subscriptions which are
delivery
paid for over time
Customer Support Revenue
Software Updates
Ratably over the course of
At the beginning of the
Observable in renewal
the support contract (over
contract period
transactions
time)
Customer Support
Ratably over the course of
At the beginning of the
Observable in renewal
the support contract (over
contract period
transactions
time)
Professional Services
Other
Professional
Within 90 days of services
Observable in transactions
As work is performed
Services (except for
being
without multiple
(over time)
education services)
performed
performance obligations
Education
Services
Within 90 days of services
Observable in transactions
When the class is taught
being
without multiple
(point in time)
performed
performance obligations
Revenue
2309
An entity is also required to disclose information about remaining performance
obligations and the amount of the transaction price allocated to such obligations,
including an explanation of when it expects to recognise the amount(s) in its
financial statements.
Both quantitative and qualitative information are required, as follows: [IFRS 15.119-120]
(a) Information about its performance obligations, including a description of all of
the following:
(i) when the entity typically satisfies its performance obligations (e.g. upon
shipment, upon delivery, as services are rendered or upon completion of
service), including when performance obligations are satisfied in a bill-and-
hold arrangement;
(ii) the significant payment terms (e.g. when payment is typically due, whether
the contract has a significant financing component, whether the consideration
amount is variable and whether the estimate of variable consideration is
typically constrained);
(iii) the nature of the goods or services that the entity has promised to transfer,
highlighting any performance obligations to arrange for another party to
transfer goods or services (i.e. if the entity is acting as an agent);
(iv) obligations for returns, refunds and other similar obligations; and
(v) types
of
warranties and related obligations.
(b) For remaining performance obligations:
(i) the aggregate amount of the transaction price allocated to the performance
obligations that are unsatisfied (or partially unsatisfied) as at the end of the
reporting period; and
(ii) an explanation of when the entity expects to recognise as revenue the amount
disclosed in accordance with (b)(i) above. An entity discloses this in either of
the following ways:
• on a quantitative basis using the time bands that would be most
appropriate for the duration of the remaining performance obligations;
or
• by using qualitative information.
2310 Chapter 28
In the Basis for Conclusions, the Board noted that many users of financial statements
commented that information about the amount and timing of revenue that an entity
expects to recognise from its existing contracts would be useful in their analyses of
revenue, especially for long-term contracts with significant unrecognised revenue.
[IFRS 15.BC348]. The Board also observed that a number of entities often voluntarily
disclose such ‘backlog’ information. However, this information is typically presented
outside the financial statements and may not be comparable across entities because
there is no common definition of backlog. As summarised in the Basis for Conclusions,
the Board’s intention in including the disclosure requirements in paragraph 120 of
IFRS 15 is to provide users of an entity’s financial statements with additional information
about the following: [IFRS 15.BC350]
• the amount and expected timing of revenue to be recognised from the remaining
performance obligations in existing contracts;
• trends relating to the amount and expected timing of revenue to be recognised
from the remaining performance obligations in existing contracts;
• risks associated with expected future revenue (e.g. uncertainties should an entity
expect not to satisfy a performance obligation until a much later date); and
• the effect of changes in judgements or circumstances on an entity’s revenue.
This disclosure can be provided on either a quantitative basis (e.g. amounts to be
recognised in given time bands, such as between one and two years and between
two and three years) or by disclosing a mix of quantitative and qualitative
information. In addition, this disclosure would only include amounts related to
performance obligations in the current contract. For example, expected contract
renewals that have not been executed and do not represent material rights are not
performance obligations in the current contract. As such, an entity does not
disclose amounts related to such renewals. However, if an entity concludes that
expected contract renewals represents a material right to acquire goods or services
in the future (and, therefore, was a separate performance obligation – see 5.6
above), the entity includes in its disclosure the consideration attributable to the
material right for the options that have not yet been exercised (i.e. the unsatisfied
performance obligation(s)).
The disclosure of the transaction price allocated to the remaining performance
obligations does not include consideration that has been excluded from the transaction
price. However, the standard requires entities to disclose qualitatively whether any
consideration is not included in the transaction price and, therefore, is not included in
the disclosure of the remaining performance obligations (e.g. variable consideration
amounts that are constrained and, therefore, excluded from the transaction price).
The Village Building Co. Limited uses time bands to disclose information about
remaining performance obligations. In Extract 28.14, it also explicitly discloses that
constrained variable consideration is excluded from the amounts disclosed. This is a
helpful reminder for users of financial statements and it indicates amounts recognised
in future periods may be higher than those included in the table.
Revenue
2311
Extract 28.14: The Village Building Co. Limited (2017)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2017 [Extract]
NOTE 4. REVENUE [Extract]
Transaction price allocated to remaining performance obligations pursuant to customer contracts
2017 2016
$’000 $’000
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
135,078
79,527
One to five years
58,160
138,146
193,238 217,673
The transaction price associated with unsatisfied or partially unsatisfied performance obligations does not include
variable consideration that is constrained
In contrast to the previous extract, Ford Motor Company uses a non-tabular approach
when disclosing information about remaining performance obligations. Extract 28.15
below illustrates this. Ford Motor Company provides an explanation in relation to its
extended service contracts. It also provides information about the recognition of related