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Australian Accounting Standard

AASB 15

Revenue from Contracts with Customers

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Issue date: 3 May 2022

Operative Date Reporting periods beginning on or after 1 July 2022 but before 1 January 2023

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Issue date: 3 May 2022

The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Preamble

Pronouncement | Copyright | Rubric | Comparison with IFRS 15 | Accounting Standard AASB 15

Pronouncement

This compiled Standard applies to annual periods beginning on or after 1 July 2022 but before 1 January 2023.  Earlier application is permitted for annual periods beginning before 1 July 2022.  It incorporates relevant amendments made up to and including 3 May 2022.

Prepared on 15 September 2022 by the staff of the Australian Accounting Standards Board.

Compilation no. 7

Compilation date:  30 June 2022

Obtaining copies of Accounting Standards

Compiled versions of Standards, original Standards and amending Standards (see Compilation Details) are available on the AASB website: www.aasb.gov.au.

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Rubric

Australian Accounting Standard AASB 15 Revenue from Contracts with Customers (as amended) is set out in paragraphs 1 – 129 and Appendices A – C and E – G. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendices A and A.1 are in italics the first time they appear in the Standard. AASB 15 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations, and AASB 1057 Application of Australian Accounting Standards. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.

Comparison with IFRS 15

AASB 15 Revenue from Contracts with Customers as amended incorporates IFRS 15 Revenue from Contracts with Customers as issued and amended by the International Accounting Standards Board (IASB). Australian‑specific paragraphs (which are not included in IFRS 15) are identified with the prefix “Aus”. Paragraphs that apply only to not-for-profit entities begin by identifying their limited applicability.

Tier 1

For-profit entities complying with AASB 15 also comply with IFRS 15.

Not-for-profit entities’ compliance with IFRS 15 will depend on whether any “Aus” paragraphs that specifically apply to not-for-profit entities provide additional guidance or contain applicable requirements that are inconsistent with IFRS 15.

Tier 2

Entities preparing general purpose financial statements under Australian Accounting Standards – Simplified Disclosures (Tier 2) will not be in compliance with IFRS Standards.

AASB 1053 Application of Tiers of Australian Accounting Standards explains the two tiers of reporting requirements.

Accounting Standard AASB 15

The Australian Accounting Standards Board made Accounting Standard AASB 15 Revenue from Contracts with Customers under section 334 of the Corporations Act 2001 on 12 December 2014.

This compiled version of AASB 15 applies to annual periods beginning on or after 1 July 2022 but before 1 January 2023. It incorporates relevant amendments contained in other AASB Standards made by the AASB up to and including 3 May 2022 (see Compilation Details).

Objective

Meeting the objective

1

The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Meeting the objective

2

To meet the objective in paragraph 1, the core principle of this Standard is that an entity shall recognise 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.

3

An entity shall consider the terms of the contract and all relevant facts and circumstances when applying this Standard. An entity shall apply this Standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.

4

This Standard specifies the accounting for an individual contract with a customer. However, as a practical expedient, an entity may apply this Standard to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual contracts (or performance obligations) within that portfolio. When accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of the portfolio.

Scope

Recognition exemptions (paragraphs G22–G27)

5

An entity shall apply this Standard to all contracts with customers, except the following:

(a)            lease contracts within the scope of AASB 16 Leases;

(b)            insurance contracts within the scope of AASB 4 Insurance Contracts;

(c)            financial instruments and other contractual rights or obligations within the scope of AASB 9 Financial Instruments, AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures; and

(d)            non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. For example, this Standard would not apply to a contract between two oil companies that agree to an exchange of oil to fulfil demand from their customers in different specified locations on a timely basis.

Aus5.1

In addition to paragraph 5, in respect of not-for-profit entities, a transfer of a financial asset to enable an entity to acquire or construct a recognisable non-financial asset that is to be controlled by the entity, as described in AASB 1058 Income of Not-for-Profit Entities, is not within the scope of this Standard.

Aus5.2

Notwithstanding paragraph 5, in respect of not-for-profit public sector licensors, this Standard also applies to licences issued, other than licences subject to AASB 16 Leases, or transactions subject to AASB 1059 Service Concession Arrangements: Grantors, irrespective of whether the licences are contracts with customers. Licences include those arising from statutory requirements. Guidance on applying this Standard to licences is set out in Appendix G, including the distinction between a licence and a tax.

6

An entity shall apply this Standard to a contract (other than a contract listed in paragraph 5) only if the counterparty to the contract is a customer. A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. A counterparty to the contract would not be a customer if, for example, the counterparty has contracted with the entity to participate in an activity or process in which the parties to the contract share in the risks and benefits that result from the activity or process (such as developing an asset in a collaboration arrangement) rather than to obtain the output of the entity’s ordinary activities.

7

A contract with a customer may be partially within the scope of this Standard and partially within the scope of other Standards listed in paragraph 5.

(a)            If the other Standards specify how to separate and/or initially measure one or more parts of the contract, then an entity shall first apply the separation and/or measurement requirements in those Standards. An entity shall exclude from the transaction price the amount of the part (or parts) of the contract that are initially measured in accordance with other Standards and shall apply paragraphs 73–86 to allocate the amount of the transaction price that remains (if any) to each performance obligation within the scope of this Standard and to any other parts of the contract identified by paragraph 7(b).

(b)            If the other Standards do not specify how to separate and/or initially measure one or more parts of the contract, then the entity shall apply this Standard to separate and/or initially measure the part (or parts) of the contract.

Aus7.1

For not-for-profit entities, a contract may also be partially within the scope of this Standard and partially within the scope of AASB 1058.

8

This Standard specifies the accounting for the incremental costs of obtaining a contract with a customer and for the costs incurred to fulfil a contract with a customer if those costs are not within the scope of another Standard (see paragraphs 91–104). An entity shall apply those paragraphs only to the costs incurred that relate to a contract with a customer (or part of that contract) that is within the scope of this Standard.

Recognition exemptions (paragraphs G22–G27)

Aus8.1

Except as specified in paragraph Aus8.2, a not-for-profit public sector licensor may elect not to apply the requirements in paragraphs 9–90 (and accompanying Application Guidance) to:

(a)            short-term licences; and

(b)            licences for which the transaction price is of low value.

Aus8.2

The option allowed in paragraph Aus8.1 is not available to licences that have variable consideration in their terms and conditions (see paragraphs 50–59 for identifying and accounting for variable consideration).

Aus8.3

If in accordance with paragraph Aus8.1 a not-for-profit public sector licensor elects not to apply the requirements in paragraphs 9–90 (and accompanying Application Guidance) to either short-term licences or licences for which the transaction price is of low value, the licensor shall recognise the revenue associated with those licences either at the point in time the licence is issued, or on a straight-line basis over the licence term or another systematic basis.

Aus8.4

If in accordance with paragraph Aus8.1 a not-for-profit public sector licensor elects not to apply the requirements in paragraphs 9–90 (and accompanying Application Guidance) to short-term licences, a licence shall be treated as if it is a new licence for the purposes of AASB 15 if there is:

(a)            a modification to the scope of, or the consideration for, the licence; or

(b)            any change in the term of the licence.

Aus8.5

The election for short-term licences under paragraph Aus8.1 shall be made by class of licence. A class of licences is a grouping of licences of a similar nature and similar rights and obligations attached to the licence. The election for licences for which the transaction price is of low value can be made on a licence-by-licence basis.

Recognition

Identifying the contract | Combination of contracts | Contract modifications | Identifying performance obligations | Promises in contracts with customers | Distinct goods or services | Satisfaction of performance obligations | Performance obligations satisfied over time | Performance obligations satisfied at a point in time | Measuring progress towards complete satisfaction of a performance obligation | Methods for measuring progress | Reasonable measures of progress

Identifying the contract

9

An entity shall account for a contract with a customer that is within the scope of this Standard only when all of the following criteria are met:

(a)            the parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are committed to perform their respective obligations;

(b)            the entity can identify each party’s rights regarding the goods or services to be transferred;

(c)            the entity can identify the payment terms for the goods or services to be transferred;

(d)            the contract has commercial substance (ie the risk, timing or amount of the entity’s future cash flows is expected to change as a result of the contract); and

(e)            it is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, an entity shall consider only the customer’s ability and intention to pay that amount of consideration when it is due. The amount of consideration to which the entity will be entitled may be less than the price stated in the contract if the consideration is variable because the entity may offer the customer a price concession (see paragraph 52).

Aus9.1

Notwithstanding paragraph 9, in respect of not-for-profit entities, if a contract that would otherwise be within the scope of AASB 15 does not meet the criteria in paragraph 9 as it is unenforceable or not sufficiently specific, it is not a contract with a customer within the scope of AASB 15 (see paragraph F5). An entity shall consider the requirements of AASB 1058 in accounting for such contracts.

10

A contract is an agreement between two or more parties that creates enforceable rights and obligations. Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity’s customary business practices. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities. In addition, they may vary within an entity (for example, they may depend on the class of customer or the nature of the promised goods or services). An entity shall consider those practices and processes in determining whether and when an agreement with a customer creates enforceable rights and obligations.

11

Some contracts with customers may have no fixed duration and can be terminated or modified by either party at any time. Other contracts may automatically renew on a periodic basis that is specified in the contract. An entity shall apply this Standard to the duration of the contract (ie the contractual period) in which the parties to the contract have present enforceable rights and obligations.

12

For the purpose of applying this Standard, a contract does not exist if each party to the contract has the unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party (or parties). A contract is wholly unperformed if both of the following criteria are met:

(a)            the entity has not yet transferred any promised goods or services to the customer; and

(b)            the entity has not yet received, and is not yet entitled to receive, any consideration in exchange for promised goods or services.

13

If a contract with a customer meets the criteria in paragraph 9 at contract inception, an entity shall not reassess those criteria unless there is an indication of a significant change in facts and circumstances. For example, if a customer’s ability to pay the consideration deteriorates significantly, an entity would reassess whether it is probable that the entity will collect the consideration to which the entity will be entitled in exchange for the remaining goods or services that will be transferred to the customer.

14

If a contract with a customer does not meet the criteria in paragraph 9, an entity shall continue to assess the contract to determine whether the criteria in paragraph 9 are subsequently met.

16

An entity shall recognise the consideration received from a customer as a liability until one of the events in paragraph 15 occurs or until the criteria in paragraph 9 are subsequently met (see paragraph 14). Depending on the facts and circumstances relating to the contract, the liability recognised represents the entity’s obligation to either transfer goods or services in the future or refund the consideration received. In either case, the liability shall be measured at the amount of consideration received from the customer.

Combination of contracts

17

An entity shall combine two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) and account for the contracts as a single contract if one or more of the following criteria are met:

(a)            the contracts are negotiated as a package with a single commercial objective;

(b)            the amount of consideration to be paid in one contract depends on the price or performance of the other contract; or

(c)            the goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation in accordance with paragraphs 22–30.

Contract modifications

18

A contract modification is a change in the scope or price (or both) of a contract that is approved by the parties to the contract. In some industries and jurisdictions, a contract modification may be described as a change order, a variation or an amendment. A contract modification exists when the parties to a contract approve a modification that either creates new or changes existing enforceable rights and obligations of the parties to the contract. A contract modification could be approved in writing, by oral agreement or implied by customary business practices. If the parties to the contract have not approved a contract modification, an entity shall continue to apply this Standard to the existing contract until the contract modification is approved.

19

A contract modification may exist even though the parties to the contract have a dispute about the scope or price (or both) of the modification or the parties have approved a change in the scope of the contract but have not yet determined the corresponding change in price. In determining whether the rights and obligations that are created or changed by a modification are enforceable, an entity shall consider all relevant facts and circumstances including the terms of the contract and other evidence. If the parties to a contract have approved a change in the scope of the contract but have not yet determined the corresponding change in price, an entity shall estimate the change to the transaction price arising from the modification in accordance with paragraphs 50–54 on estimating variable consideration and paragraphs 56–58 on constraining estimates of variable consideration.

20

An entity shall account for a contract modification as a separate contract if both of the following conditions are present:

(a)            the scope of the contract increases because of the addition of promised goods or services that are distinct (in accordance with paragraphs 26–30); and

(b)            the price of the contract increases by an amount of consideration that reflects the entity’s stand-alone selling prices of the additional promised goods or services and any appropriate adjustments to that price to reflect the circumstances of the particular contract. For example, an entity may adjust the stand-alone selling price of an additional good or service for a discount that the customer receives, because it is not necessary for the entity to incur the selling-related costs that it would incur when selling a similar good or service to a new customer.

21

If a contract modification is not accounted for as a separate contract in accordance with paragraph 20, an entity shall account for the promised goods or services not yet transferred at the date of the contract modification (ie the remaining promised goods or services) in whichever of the following ways is applicable:

(a)            An entity shall account for the contract modification as if it were a termination of the existing contract and the creation of a new contract, if the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification. The amount of consideration to be allocated to the remaining performance obligations (or to the remaining distinct goods or services in a single performance obligation identified in accordance with paragraph 22(b)) is the sum of:

(i)             the consideration promised by the customer (including amounts already received from the customer) that was included in the estimate of the transaction price and that had not been recognised as revenue; and

(ii)            the consideration promised as part of the contract modification.

(b)            An entity shall account for the contract modification as if it were a part of the existing contract if the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification. The effect that the contract modification has on the transaction price, and on the entity’s measure of progress towards complete satisfaction of the performance obligation, is recognised as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (ie the adjustment to revenue is made on a cumulative catch-up basis).

(c)            If the remaining goods or services are a combination of items (a) and (b), then the entity shall account for the effects of the modification on the unsatisfied (including partially unsatisfied) performance obligations in the modified contract in a manner that is consistent with the objectives of this paragraph.

Identifying performance obligations

22

At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:

(a)            a good or service (or a bundle of goods or services) that is distinct; or

(b)            a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (see paragraph 23).

23

A series of distinct goods or services has the same pattern of transfer to the customer if both of the following criteria are met:

(a)            each distinct good or service in the series that the entity promises to transfer to the customer would meet the criteria in paragraph 35 to be a performance obligation satisfied over time; and

(b)            in accordance with paragraphs 39–40, the same method would be used to measure the entity’s progress towards complete satisfaction of the performance obligation to transfer each distinct good or service in the series to the customer.

Promises in contracts with customers

24

A contract with a customer generally explicitly states the goods or services that an entity promises to transfer to a customer. However, the performance obligations identified in a contract with a customer may not be limited to the goods or services that are explicitly stated in that contract. This is because a contract with a customer may also include promises that are implied by an entity’s customary business practices, published policies or specific statements if, at the time of entering into the contract, those promises create a valid expectation of the customer that the entity will transfer a good or service to the customer.

25

Performance obligations do not include activities that an entity must undertake to fulfil a contract unless those activities transfer a good or service to a customer. For example, a services provider may need to perform various administrative tasks to set up a contract. The performance of those tasks does not transfer a service to the customer as the tasks are performed. Therefore, those setup activities are not a performance obligation.

Distinct goods or services

26

Depending on the contract, promised goods or services may include, but are not limited to, the following:

(a)            sale of goods produced by an entity (for example, inventory of a manufacturer)

(b)            resale of goods purchased by an entity (for example, merchandise of a retailer);

(c)            resale of rights to goods or services purchased by an entity (for example, a ticket resold by an entity acting as a principal, as described in paragraphs B34–B38);

(d)            performing a contractually agreed-upon task (or tasks) for a customer

(e)            providing a service of standing ready to provide goods or services (for example, unspecified updates to software that are provided on a when-and-if-available basis) or of making goods or services available for a customer to use as and when the customer decides;

(f)            providing a service of arranging for another party to transfer goods or services to a customer (for example, acting as an agent of another party, as described in paragraphs B34–B38);

(g)            granting rights to goods or services to be provided in the future that a customer can resell or provide to its customer (for example, an entity selling a product to a retailer promises to transfer an additional good or service to an individual who purchases the product from the retailer);

(h)            constructing, manufacturing or developing an asset on behalf of a customer;

(i)            granting licences (see paragraphs B52–B63B); and

(j)            granting options to purchase additional goods or services (when those options provide a customer with a material right, as described in paragraphs B39–B43).

Aus26.1

Notwithstanding paragraph 26(i), a not-for-profit public sector licensor shall refer to Appendix G for guidance on accounting for revenue from licences issued.

28

A customer can benefit from a good or service in accordance with paragraph 27(a) if the good or service could be used, consumed, sold for an amount that is greater than scrap value or otherwise held in a way that generates economic benefits. For some goods or services, a customer may be able to benefit from a good or service on its own. For other goods or services, a customer may be able to benefit from the good or service only in conjunction with other readily available resources. A readily available resource is a good or service that is sold separately (by the entity or another entity) or a resource that the customer has already obtained from the entity (including goods or services that the entity will have already transferred to the customer under the contract) or from other transactions or events. Various factors may provide evidence that the customer can benefit from a good or service either on its own or in conjunction with other readily available resources. For example, the fact that the entity regularly sells a good or service separately would indicate that a customer can benefit from the good or service on its own or with other readily available resources.

29

In assessing whether an entity’s promises to transfer goods or services to the customer are separately identifiable in accordance with paragraph 27(b), the objective is to determine whether the nature of the promise, within the context of the contract, is to transfer each of those goods or services individually or, instead, to transfer a combined item or items to which the promised goods or services are inputs. Factors that indicate that two or more promises to transfer goods or services to a customer are not separately identifiable include, but are not limited to, the following:

(a)            the entity provides a significant service of integrating the goods or services with other goods or services promised in the contract into a bundle of goods or services that represent the combined output or outputs for which the customer has contracted. In other words, the entity is using the goods or services as inputs to produce or deliver the combined output or outputs specified by the customer. A combined output or outputs might include more than one phase, element or unit.

(b)            one or more of the goods or services significantly modifies or customises, or are significantly modified or customised by, one or more of the other goods or services promised in the contract.

(c)            the goods or services are highly interdependent or highly interrelated. In other words, each of the goods or services is significantly affected by one or more of the other goods or services in the contract. For example, in some cases, two or more goods or services are significantly affected by each other because the entity would not be able to fulfil its promise by transferring each of the goods or services independently.

30

If a promised good or service is not distinct, an entity shall combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct. In some cases, that would result in the entity accounting for all the goods or services promised in a contract as a single performance obligation.

Satisfaction of performance obligations

31

An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.

32

For each performance obligation identified in accordance with paragraphs 22–30, an entity shall determine at contract inception whether it satisfies the performance obligation over time (in accordance with paragraphs 35–37) or satisfies the performance obligation at a point in time (in accordance with paragraph 38). If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time.

33

Goods and services are assets, even if only momentarily, when they are received and used (as in the case of many services). Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. The benefits of an asset are the potential cash flows (inflows or savings in outflows) that can be obtained directly or indirectly in many ways, such as by:

(a)            using the asset to produce goods or provide services (including public services);

(b)            using the asset to enhance the value of other assets;

(c)            using the asset to settle liabilities or reduce expenses;

(d)            selling or exchanging the asset;

(e)            pledging the asset to secure a loan; and

(f)            holding the asset.

34

When evaluating whether a customer obtains control of an asset, an entity shall consider any agreement to repurchase the asset (see paragraphs B64–B76).

Performance obligations satisfied over time

35

An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:

(a)            the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs (see paragraphs B3–B4);

(b)            the entity’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced (see paragraph B5); or

(c)            the entity’s performance does not create an asset with an alternative use to the entity (see paragraph 36) and the entity has an enforceable right to payment for performance completed to date (see paragraph 37).

36

An asset created by an entity’s performance does not have an alternative use to an entity if the entity is either restricted contractually from readily directing the asset for another use during the creation or enhancement of that asset or limited practically from readily directing the asset in its completed state for another use. The assessment of whether an asset has an alternative use to the entity is made at contract inception. After contract inception, an entity shall not update the assessment of the alternative use of an asset unless the parties to the contract approve a contract modification that substantively changes the performance obligation. Paragraphs B6–B8 provide guidance for assessing whether an asset has an alternative use to an entity.

37

An entity shall consider the terms of the contract, as well as any laws that apply to the contract, when evaluating whether it has an enforceable right to payment for performance completed to date in accordance with paragraph 35(c). The right to payment for performance completed to date does not need to be for a fixed amount. However, at all times throughout the duration of the contract, the entity must be entitled to an amount that at least compensates the entity for performance completed to date if the contract is terminated by the customer or another party for reasons other than the entity’s failure to perform as promised. Paragraphs B9–B13 provide guidance for assessing the existence and enforceability of a right to payment and whether an entity’s right to payment would entitle the entity to be paid for its performance completed to date.

Performance obligations satisfied at a point in time

38

If a performance obligation is not satisfied over time in accordance with paragraphs 35–37, an entity satisfies the performance obligation at a point in time. To determine the point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the entity shall consider the requirements for control in paragraphs 31–34. In addition, an entity shall consider indicators of the transfer of control, which include, but are not limited to, the following:

(a)            The entity has a present right to payment for the asset—if a customer is presently obliged to pay for an asset, then that may indicate that the customer has obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset in exchange.

(b)            The customer has legal title to the asset—legal title may indicate which party to a contract has the ability to direct the use of, and obtain substantially all of the remaining benefits from, an asset or to restrict the access of other entities to those benefits. Therefore, the transfer of legal title of an asset may indicate that the customer has obtained control of the asset. If an entity retains legal title solely as protection against the customer’s failure to pay, those rights of the entity would not preclude the customer from obtaining control of an asset.

(c)            The entity has transferred physical possession of the asset—the customer’s physical possession of an asset may indicate that the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset or to restrict the access of other entities to those benefits. However, physical possession may not coincide with control of an asset. For example, in some repurchase agreements and in some consignment arrangements, a customer or consignee may have physical possession of an asset that the entity controls. Conversely, in some bill-and-hold arrangements, the entity may have physical possession of an asset that the customer controls. Paragraphs B64–B76, B77–B78 and B79–B82 provide guidance on accounting for repurchase agreements, consignment arrangements and bill-and-hold arrangements, respectively.

(d)            The customer has the significant risks and rewards of ownership of the asset—the transfer of the significant risks and rewards of ownership of an asset to the customer may indicate that the customer has obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. However, when evaluating the risks and rewards of ownership of a promised asset, an entity shall exclude any risks that give rise to a separate performance obligation in addition to the performance obligation to transfer the asset. For example, an entity may have transferred control of an asset to a customer but not yet satisfied an additional performance obligation to provide maintenance services related to the transferred asset.

(e)            The customer has accepted the asset—the customer’s acceptance of an asset may indicate that it has obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. To evaluate the effect of a contractual customer acceptance clause on when control of an asset is transferred, an entity shall consider the guidance in paragraphs B83–B86.

Measuring progress towards complete satisfaction of a performance obligation

39

For each performance obligation satisfied over time in accordance with paragraphs 35–37, an entity shall recognise revenue over time by measuring the progress towards complete satisfaction of that performance obligation. The objective when measuring progress is to depict an entity’s performance in transferring control of goods or services promised to a customer (ie the satisfaction of an entity’s performance obligation).

40

An entity shall apply a single method of measuring progress for each performance obligation satisfied over time and the entity shall apply that method consistently to similar performance obligations and in similar circumstances. At the end of each reporting period, an entity shall remeasure its progress towards complete satisfaction of a performance obligation satisfied over time.

Methods for measuring progress

41

Appropriate methods of measuring progress include output methods and input methods. Paragraphs B14–B19 provide guidance for using output methods and input methods to measure an entity’s progress towards complete satisfaction of a performance obligation. In determining the appropriate method for measuring progress, an entity shall consider the nature of the good or service that the entity promised to transfer to the customer.

42

When applying a method for measuring progress, an entity shall exclude from the measure of progress any goods or services for which the entity does not transfer control to a customer. Conversely, an entity shall include in the measure of progress any goods or services for which the entity does transfer control to a customer when satisfying that performance obligation.

43

As circumstances change over time, an entity shall update its measure of progress to reflect any changes in the outcome of the performance obligation. Such changes to an entity’s measure of progress shall be accounted for as a change in accounting estimate in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.

Reasonable measures of progress

44

An entity shall recognise revenue for a performance obligation satisfied over time only if the entity can reasonably measure its progress towards complete satisfaction of the performance obligation. An entity would not be able to reasonably measure its progress towards complete satisfaction of a performance obligation if it lacks reliable information that would be required to apply an appropriate method of measuring progress.

45

In some circumstances (for example, in the early stages of a contract), an entity may not be able to reasonably measure the outcome of a performance obligation, but the entity expects to recover the costs incurred in satisfying the performance obligation. In those circumstances, the entity shall recognise revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation.

Measurement

Determining the transaction price | Variable consideration | Refund liabilities | Constraining estimates of variable consideration | Reassessment of variable consideration | The existence of a significant financing component in the contract | Non-cash consideration | Consideration payable to a customer | Allocating the transaction price to performance obligations | Allocation based on stand-alone selling prices | Allocation of a discount | Allocation of variable consideration | Changes in the transaction price

46

When (or as) a performance obligation is satisfied, an entity shall recognise as revenue the amount of the transaction price (which excludes estimates of variable consideration that are constrained in accordance with paragraphs 56–58) that is allocated to that performance obligation.

Determining the transaction price

47

An entity shall consider the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

48

The nature, timing and amount of consideration promised by a customer affect the estimate of the transaction price. When determining the transaction price, an entity shall consider the effects of all of the following:

(a)            variable consideration (see paragraphs 50–55 and 59);

(b)            constraining estimates of variable consideration (see paragraphs 56–58);

(c)            the existence of a significant financing component in the contract (see paragraphs 60–65);

(d)            non-cash consideration (see paragraphs 66–69); and

(e)            consideration payable to a customer (see paragraphs 70–72).

49

For the purpose of determining the transaction price, an entity shall assume that the goods or services will be transferred to the customer as promised in accordance with the existing contract and that the contract will not be cancelled, renewed or modified.

Variable consideration

50

If the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer.

51

An amount of consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. The promised consideration can also vary if an entity’s entitlement to the consideration is contingent on the occurrence or non-occurrence of a future event. For example, an amount of consideration would be variable if either a product was sold with a right of return or a fixed amount is promised as a performance bonus on achievement of a specified milestone.

54

An entity shall apply one method consistently throughout the contract when estimating the effect of an uncertainty on an amount of variable consideration to which the entity will be entitled. In addition, an entity shall consider all the information (historical, current and forecast) that is reasonably available to the entity and shall identify a reasonable number of possible consideration amounts. The information that an entity uses to estimate the amount of variable consideration would typically be similar to the information that the entity’s management uses during the bid-and-proposal process and in establishing prices for promised goods or services.

Refund liabilities

55

An entity shall recognise a refund liability if the entity receives consideration from a customer and expects to refund some or all of that consideration to the customer. A refund liability is measured at the amount of consideration received (or receivable) for which the entity does not expect to be entitled (ie amounts not included in the transaction price). The refund liability (and corresponding change in the transaction price and, therefore, the contract liability) shall be updated at the end of each reporting period for changes in circumstances. To account for a refund liability relating to a sale with a right of return, an entity shall apply the guidance in paragraphs B20–B27.

Constraining estimates of variable consideration

56

An entity shall include in the transaction price some or all of an amount of variable consideration estimated in accordance with paragraph 53 only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

57

In assessing whether it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur once the uncertainty related to the variable consideration is subsequently resolved, an entity shall consider both the likelihood and the magnitude of the revenue reversal. Factors that could increase the likelihood or the magnitude of a revenue reversal include, but are not limited to, any of the following:

(a)            the amount of consideration is highly susceptible to factors outside the entity’s influence. Those factors may include volatility in a market, the judgement or actions of third parties, weather conditions and a high risk of obsolescence of the promised good or service.

(b)            the uncertainty about the amount of consideration is not expected to be resolved for a long period of time.

(c)            the entity’s experience (or other evidence) with similar types of contracts is limited, or that experience (or other evidence) has limited predictive value.

(d)            the entity has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances.

(e)            the contract has a large number and broad range of possible consideration amounts.

58

An entity shall apply paragraph B63 to account for consideration in the form of a sales-based or usage-based royalty that is promised in exchange for a licence of intellectual property.

Reassessment of variable consideration

59

At the end of each reporting period, an entity shall update the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. The entity shall account for changes in the transaction price in accordance with paragraphs 87–90.

The existence of a significant financing component in the contract

60

In determining the transaction price, an entity shall adjust the promised amount of consideration for the effects of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provides the customer or the entity with a significant benefit of financing the transfer of goods or services to the customer. In those circumstances, the contract contains a significant financing component. A significant financing component may exist regardless of whether the promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties to the contract.

61

The objective when adjusting the promised amount of consideration for a significant financing component is for an entity to recognise revenue at an amount that reflects the price that a customer would have paid for the promised goods or services if the customer had paid cash for those goods or services when (or as) they transfer to the customer (ie the cash selling price). An entity shall consider all relevant facts and circumstances in assessing whether a contract contains a financing component and whether that financing component is significant to the contract, including both of the following:

(a)            the difference, if any, between the amount of promised consideration and the cash selling price of the promised goods or services; and

(b)            the combined effect of both of the following:

(i)             the expected length of time between when the entity transfers the promised goods or services to the customer and when the customer pays for those goods or services; and

(ii)            the prevailing interest rates in the relevant market.

63

As a practical expedient, an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

64

To meet the objective in paragraph 61 when adjusting the promised amount of consideration for a significant financing component, an entity shall use the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception. That rate would reflect the credit characteristics of the party receiving financing in the contract, as well as any collateral or security provided by the customer or the entity, including assets transferred in the contract. An entity may be able to determine that rate by identifying the rate that discounts the nominal amount of the promised consideration to the price that the customer would pay in cash for the goods or services when (or as) they transfer to the customer. After contract inception, an entity shall not update the discount rate for changes in interest rates or other circumstances (such as a change in the assessment of the customer’s credit risk).

65

An entity shall present the effects of financing (interest revenue or interest expense) separately from revenue from contracts with customers in the statement of comprehensive income. Interest revenue or interest expense is recognised only to the extent that a contract asset (or receivable) or a contract liability is recognised in accounting for a contract with a customer.

Non-cash consideration

66

To determine the transaction price for contracts in which a customer promises consideration in a form other than cash, an entity shall measure the non-cash consideration (or promise of non-cash consideration) at fair value.

67

If an entity cannot reasonably estimate the fair value of the non-cash consideration, the entity shall measure the consideration indirectly by reference to the stand-alone selling price of the goods or services promised to the customer (or class of customer) in exchange for the consideration.

68

The fair value of the non-cash consideration may vary because of the form of the consideration (for example, a change in the price of a share to which an entity is entitled to receive from a customer). If the fair value of the non-cash consideration promised by a customer varies for reasons other than only the form of the consideration (for example, the fair value could vary because of the entity’s performance), an entity shall apply the requirements in paragraphs 56–58.

69

If a customer contributes goods or services (for example, materials, equipment or labour) to facilitate an entity’s fulfilment of the contract, the entity shall assess whether it obtains control of those contributed goods or services. If so, the entity shall account for the contributed goods or services as non-cash consideration received from the customer.

Consideration payable to a customer

70

Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity’s goods or services from the customer). Consideration payable to a customer also includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity’s goods or services from the customer). An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as described in paragraphs 26–30) that the customer transfers to the entity. If the consideration payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate of variable consideration is constrained) in accordance with paragraphs 50–58.

71

If consideration payable to a customer is a payment for a distinct good or service from the customer, then an entity shall account for the purchase of the good or service in the same way that it accounts for other purchases from suppliers. If the amount of consideration payable to the customer exceeds the fair value of the distinct good or service that the entity receives from the customer, then the entity shall account for such an excess as a reduction of the transaction price. If the entity cannot reasonably estimate the fair value of the good or service received from the customer, it shall account for all of the consideration payable to the customer as a reduction of the transaction price.

72

Accordingly, if consideration payable to a customer is accounted for as a reduction of the transaction price, an entity shall recognise the reduction of revenue when (or as) the later of either of the following events occurs:

(a)            the entity recognises revenue for the transfer of the related goods or services to the customer; and

(b)            the entity pays or promises to pay the consideration (even if the payment is conditional on a future event). That promise might be implied by the entity’s customary business practices.

Allocating the transaction price to performance obligations

73

The objective when allocating the transaction price is for an entity to allocate the transaction price to each performance obligation (or distinct good or service) in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer.

74

To meet the allocation objective, an entity shall allocate the transaction price to each performance obligation identified in the contract on a relative stand-alone selling price basis in accordance with paragraphs 76–80, except as specified in paragraphs 81–83 (for allocating discounts) and paragraphs 84–86 (for allocating consideration that includes variable amounts).

75

Paragraphs 76–86 do not apply if a contract has only one performance obligation. However, paragraphs 84–86 may apply if an entity promises to transfer a series of distinct goods or services identified as a single performance obligation in accordance with paragraph 22(b) and the promised consideration includes variable amounts.

Allocation based on stand-alone selling prices

76

To allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, an entity shall determine the stand-alone selling price at contract inception of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those stand-alone selling prices.

77

The stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer. The best evidence of a stand-alone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers. A contractually stated price or a list price for a good or service may be (but shall not be presumed to be) the stand-alone selling price of that good or service.

78

If a stand-alone selling price is not directly observable, an entity shall estimate the stand-alone selling price at an amount that would result in the allocation of the transaction price meeting the allocation objective in paragraph 73. When estimating a stand-alone selling price, an entity shall consider all information (including market conditions, entity-specific factors and information about the customer or class of customer) that is reasonably available to the entity. In doing so, an entity shall maximise the use of observable inputs and apply estimation methods consistently in similar circumstances.

79

Suitable methods for estimating the stand-alone selling price of a good or service include, but are not limited to, the following:

(a)            Adjusted market assessment approach—an entity could evaluate the market in which it sells goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services. That approach might also include referring to prices from the entity’s competitors for similar goods or services and adjusting those prices as necessary to reflect the entity’s costs and margins.

(b)            Expected cost plus a margin approach—an entity could forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service.

(c)            Residual approach—an entity may estimate the stand-alone selling price by reference to the total transaction price less the sum of the observable stand-alone selling prices of other goods or services promised in the contract. However, an entity may use a residual approach to estimate, in accordance with paragraph 78, the stand-alone selling price of a good or service only if one of the following criteria is met:

(i)             the entity sells the same good or service to different customers (at or near the same time) for a broad range of amounts (ie the selling price is highly variable because a representative stand-alone selling price is not discernible from past transactions or other observable evidence); or

(ii)            the entity has not yet established a price for that good or service and the good or service has not previously been sold on a stand-alone basis (ie the selling price is uncertain).

80

A combination of methods may need to be used to estimate the stand-alone selling prices of the goods or services promised in the contract if two or more of those goods or services have highly variable or uncertain stand-alone selling prices. For example, an entity may use a residual approach to estimate the aggregate stand-alone selling price for those promised goods or services with highly variable or uncertain stand-alone selling prices and then use another method to estimate the stand-alone selling prices of the individual goods or services relative to that estimated aggregate stand-alone selling price determined by the residual approach. When an entity uses a combination of methods to estimate the stand-alone selling price of each promised good or service in the contract, the entity shall evaluate whether allocating the transaction price at those estimated stand-alone selling prices would be consistent with the allocation objective in paragraph 73 and the requirements for estimating stand-alone selling prices in paragraph 78.

Allocation of a discount

81

A customer receives a discount for purchasing a bundle of goods or services if the sum of the stand-alone selling prices of those promised goods or services in the contract exceeds the promised consideration in a contract. Except when an entity has observable evidence in accordance with paragraph 82 that the entire discount relates to only one or more, but not all, performance obligations in a contract, the entity shall allocate a discount proportionately to all performance obligations in the contract. The proportionate allocation of the discount in those circumstances is a consequence of the entity allocating the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of the underlying distinct goods or services.

82

An entity shall allocate a discount entirely to one or more, but not all, performance obligations in the contract if all of the following criteria are met:

(a)            the entity regularly sells each distinct good or service (or each bundle of distinct goods or services) in the contract on a stand-alone basis;

(b)            the entity also regularly sells on a stand-alone basis a bundle (or bundles) of some of those distinct goods or services at a discount to the stand-alone selling prices of the goods or services in each bundle; and

(c)            the discount attributable to each bundle of goods or services described in paragraph 82(b) is substantially the same as the discount in the contract and an analysis of the goods or services in each bundle provides observable evidence of the performance obligation (or performance obligations) to which the entire discount in the contract belongs.

83

If a discount is allocated entirely to one or more performance obligations in the contract in accordance with paragraph 82, an entity shall allocate the discount before using the residual approach to estimate the stand-alone selling price of a good or service in accordance with paragraph 79(c).

Allocation of variable consideration

84

Variable consideration that is promised in a contract may be attributable to the entire contract or to a specific part of the contract, such as either of the following:

(a)            one or more, but not all, performance obligations in the contract (for example, a bonus may be contingent on an entity transferring a promised good or service within a specified period of time); or

(b)            one or more, but not all, distinct goods or services promised in a series of distinct goods or services that forms part of a single performance obligation in accordance with paragraph 22(b) (for example, the consideration promised for the second year of a two-year cleaning service contract will increase on the basis of movements in a specified inflation index).

85

An entity shall allocate a variable amount (and subsequent changes to that amount) entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation in accordance with paragraph 22(b) if both of the following criteria are met:

(a)            the terms of a variable payment relate specifically to the entity’s efforts to satisfy the performance obligation or transfer the distinct good or service (or to a specific outcome from satisfying the performance obligation or transferring the distinct good or service); and

(b)            allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective in paragraph 73 when considering all of the performance obligations and payment terms in the contract.

86

The allocation requirements in paragraphs 73–83 shall be applied to allocate the remaining amount of the transaction price that does not meet the criteria in paragraph 85.

Changes in the transaction price

87

After contract inception, the transaction price can change for various reasons, including the resolution of uncertain events or other changes in circumstances that change the amount of consideration to which an entity expects to be entitled in exchange for the promised goods or services.

88

An entity shall allocate to the performance obligations in the contract any subsequent changes in the transaction price on the same basis as at contract inception. Consequently, an entity shall not reallocate the transaction price to reflect changes in stand-alone selling prices after contract inception. Amounts allocated to a satisfied performance obligation shall be recognised as revenue, or as a reduction of revenue, in the period in which the transaction price changes.

89

An entity shall allocate a change in the transaction price entirely to one or more, but not all, performance obligations or distinct goods or services promised in a series that forms part of a single performance obligation in accordance with paragraph 22(b) only if the criteria in paragraph 85 on allocating variable consideration are met.

90

An entity shall account for a change in the transaction price that arises as a result of a contract modification in accordance with paragraphs 18–21. However, for a change in the transaction price that occurs after a contract modification, an entity shall apply paragraphs 87–89 to allocate the change in the transaction price in whichever of the following ways is applicable:

(a)            An entity shall allocate the change in the transaction price to the performance obligations identified in the contract before the modification if, and to the extent that, the change in the transaction price is attributable to an amount of variable consideration promised before the modification and the modification is accounted for in accordance with paragraph 21(a).

(b)            In all other cases in which the modification was not accounted for as a separate contract in accordance with paragraph 20, an entity shall allocate the change in the transaction price to the performance obligations in the modified contract (ie the performance obligations that were unsatisfied or partially unsatisfied immediately after the modification).

Contract costs

Incremental costs of obtaining a contract | Costs to fulfil a contract | Amortisation and impairment

Incremental costs of obtaining a contract

91

An entity shall recognise as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs.

92

The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission).

93

Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained shall be recognised as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained.

94

As a practical expedient, an entity may recognise the incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity otherwise would have recognised is one year or less.

96

For costs incurred in fulfilling a contract with a customer that are within the scope of another Standard, an entity shall account for those costs in accordance with those other Standards.

Amortisation and impairment

99

An asset recognised in accordance with paragraph 91 or 95 shall be amortised on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The asset may relate to goods or services to be transferred under a specific anticipated contract (as described in paragraph 95(a)).

100

An entity shall update the amortisation to reflect a significant change in the entity’s expected timing of transfer to the customer of the goods or services to which the asset relates. Such a change shall be accounted for as a change in accounting estimate in accordance with AASB 108.

101

An entity shall recognise an impairment loss in profit or loss to the extent that the carrying amount of an asset recognised in accordance with paragraph 91 or 95 exceeds:

(a)            the remaining amount of consideration that the entity expects to receive in exchange for the goods or services to which the asset relates; less

(b)            the costs that relate directly to providing those goods or services and that have not been recognised as expenses (see paragraph 97).

102

For the purposes of applying paragraph 101 to determine the amount of consideration that an entity expects to receive, an entity shall use the principles for determining the transaction price (except for the requirements in paragraphs 56–58 on constraining estimates of variable consideration) and adjust that amount to reflect the effects of the customer’s credit risk.

103

Before an entity recognises an impairment loss for an asset recognised in accordance with paragraph 91 or 95, the entity shall recognise any impairment loss for assets related to the contract that are recognised in accordance with another Standard (for example, AASB 102, AASB 116 and AASB 138). After applying the impairment test in paragraph 101, an entity shall include the resulting carrying amount of the asset recognised in accordance with paragraph 91 or 95 in the carrying amount of the cash-generating unit to which it belongs for the purpose of applying AASB 136 Impairment of Assets to that cash-generating unit.

104

An entity shall recognise in profit or loss a reversal of some or all of an impairment loss previously recognised in accordance with paragraph 101 when the impairment conditions no longer exist or have improved. The increased carrying amount of the asset shall not exceed the amount that would have been determined (net of amortisation) if no impairment loss had been recognised previously.

Presentation

105

When either party to a contract has performed, an entity shall present the contract in the statement of financial position as a contract asset or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment. An entity shall present any unconditional rights to consideration separately as a receivable.

106

If a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (ie a receivable), before the entity transfers a good or service to the customer, the entity shall present the contract as a contract liability when the payment is made or the payment is due (whichever is earlier). A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer.

107

If an entity performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the entity shall present the contract as a contract asset, excluding any amounts presented as a receivable. A contract asset is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer. An entity shall assess a contract asset for impairment in accordance with AASB 9. An impairment of a contract asset shall be measured, presented and disclosed on the same basis as a financial asset that is within the scope of AASB 9 (see also paragraph 113(b)).

108

A receivable is an entity’s right to consideration that is unconditional. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. For example, an entity would recognise a receivable if it has a present right to payment even though that amount may be subject to refund in the future. An entity shall account for a receivable in accordance with AASB 9. Upon initial recognition of a receivable from a contract with a customer, any difference between the measurement of the receivable in accordance with AASB 9 and the corresponding amount of revenue recognised shall be presented as an expense (for example, as an impairment loss).

109

This Standard uses the terms ‘contract asset’ and ‘contract liability’ but does not prohibit an entity from using alternative descriptions in the statement of financial position for those items. If an entity uses an alternative description for a contract asset, the entity shall provide sufficient information for a user of the financial statements to distinguish between receivables and contract assets.

Disclosure

Contracts with customers | Disaggregation of revenue | Contract balances | Performance obligations | Transaction price allocated to the remaining performance obligations | Significant judgements in the application of this Standard | Determining the timing of satisfaction of performance obligations | Determining the transaction price and the amounts allocated to performance obligations | Assets recognised from the costs to obtain or fulfil a contract with a customer | Practical expedients

110

The objective of the disclosure requirements is for an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To achieve that objective, an entity shall disclose qualitative and quantitative information about all of the following:

(a)            its contracts with customers (see paragraphs 113–122);

(b)            the significant judgements, and changes in the judgements, made in applying this Standard to those contracts (see paragraphs 123–126); and

(c)            any assets recognised from the costs to obtain or fulfil a contract with a customer in accordance with paragraph 91 or 95 (see paragraphs 127–128).

111

An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. An entity shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have substantially different characteristics.

112

An entity need not disclose information in accordance with this Standard if it has provided the information in accordance with another Standard.

Contracts with customers

113

An entity shall disclose all of the following amounts for the reporting period unless those amounts are presented separately in the statement of comprehensive income in accordance with other Standards:

(a)            revenue recognised from contracts with customers, which the entity shall disclose separately from its other sources of revenue; and

(b)            any impairment losses recognised (in accordance with AASB 9) on any receivables or contract assets arising from an entity’s contracts with customers, which the entity shall disclose separately from impairment losses from other contracts.

Disaggregation of revenue

114

An entity shall disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. An entity shall apply the guidance in paragraphs B87–B89 when selecting the categories to use to disaggregate revenue.

115

In addition, an entity shall disclose sufficient information to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue (in accordance with paragraph 114) and revenue information that is disclosed for each reportable segment, if the entity applies AASB 8 Operating Segments.

117

An entity shall explain how the timing of satisfaction of its performance obligations (see paragraph 119(a)) relates to the typical timing of payment (see paragraph 119(b)) and the effect that those factors have on the contract asset and the contract liability balances. The explanation provided may use qualitative information.

Performance obligations

119

An entity shall disclose information about its performance obligations in contracts with customers, including a description of all of the following:

(a)            when the entity typically satisfies its performance obligations (for example, 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;

(b)            the significant payment terms (for example, 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 in accordance with paragraphs 56–58);

(c)            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 (ie if the entity is acting as an agent);

(d)            obligations for returns, refunds and other similar obligations; and

(e)            types of warranties and related obligations.

Transaction price allocated to the remaining performance obligations

120

An entity shall disclose the following information about its remaining performance obligations:

(a)            the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period; and

(b)            an explanation of when the entity expects to recognise as revenue the amount disclosed in accordance with paragraph 120(a), which the entity shall disclose in either of the following ways:

(i)             on a quantitative basis using the time bands that would be most appropriate for the duration of the remaining performance obligations; or

(ii)            by using qualitative information.

121

As a practical expedient, an entity need not disclose the information in paragraph 120 for a performance obligation if either of the following conditions is met:

(a)            the performance obligation is part of a contract that has an original expected duration of one year or less; or

(b)            the entity recognises revenue from the satisfaction of the performance obligation in accordance with paragraph B16.

122

An entity shall explain qualitatively whether it is applying the practical expedient in paragraph 121 and whether any consideration from contracts with customers is not included in the transaction price and, therefore, not included in the information disclosed in accordance with paragraph 120. For example, an estimate of the transaction price would not include any estimated amounts of variable consideration that are constrained (see paragraphs 56–58).

Significant judgements in the application of this Standard

123

An entity shall disclose the judgements, and changes in the judgements, made in applying this Standard that significantly affect the determination of the amount and timing of revenue from contracts with customers. In particular, an entity shall explain the judgements, and changes in the judgements, used in determining both of the following:

(a)            the timing of satisfaction of performance obligations (see paragraphs 124–125); and

(b)            the transaction price and the amounts allocated to performance obligations (see paragraph 126).

125

For performance obligations satisfied at a point in time, an entity shall disclose the significant judgements made in evaluating when a customer obtains control of promised goods or services.

Assets recognised from the costs to obtain or fulfil a contract with a customer

127

An entity shall describe both of the following:

(a)            the judgements made in determining the amount of the costs incurred to obtain or fulfil a contract with a customer (in accordance with paragraph 91 or 95); and

(b)            the method it uses to determine the amortisation for each reporting period.

128

An entity shall disclose all of the following:

(a)            the closing balances of assets recognised from the costs incurred to obtain or fulfil a contract with a customer (in accordance with paragraph 91 or 95), by main category of asset (for example, costs to obtain contracts with customers, pre-contract costs and setup costs); and

(b)            the amount of amortisation and any impairment losses recognised in the reporting period.

Practical expedients

129

If an entity elects to use the practical expedient in either paragraph 63 (about the existence of a significant financing component) or paragraph 94 (about the incremental costs of obtaining a contract), the entity shall disclose that fact.

Commencement of the legislative instrument

Aus129.1

[Repealed]

Appendix A -- Defined terms

contract | contract asset | contract liability | customer | income | performance obligation | revenue | stand-alone selling price (of a good or service) | transaction price (for a contract with a customer)

This appendix is an integral part of AASB 15.

contract

A[1]

An agreement between two or more parties that creates enforceable rights and obligations.

contract asset

A[2]

An entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance).

contract liability

A[3]

An entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.

customer

A[4]

A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.

income

A[5]

Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.

performance obligation

A[6]

A promise in a contract with a customer to transfer to the customer either:

(a)            a good or service (or a bundle of goods or services) that is distinct; or

(b)            a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

revenue

A[7]

Income arising in the course of an entity’s ordinary activities.

stand-alone selling price (of a good or service)

A[8]

The price at which an entity would sell a promised good or service separately to a customer.

transaction price (for a contract with a customer)

A[9]

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

Appendix A.1 -- Australian defined terms

short-term licence

This appendix is an integral part of AASB 15. The appendix applies only to not-for-profit public sector licensors.

short-term licence

A.1[1]

A licence that has a term of 12 months or less.

Appendix B -- Application guidance

Performance obligations satisfied over time | Simultaneous receipt and consumption of the benefits of the entity’s performance (paragraph 35(a)) | Customer controls the asset as it is created or enhanced (paragraph 35(b)) | Entity’s performance does not create an asset with an alternative use (paragraph 35(c)) | Right to payment for performance completed to date (paragraph 35(c)) | Methods for measuring progress towards complete satisfaction of a performance obligation | Output methods | Input methods | Sale with a right of return | Warranties | Principal versus agent considerations | Customer options for additional goods and services | Customers’ unexercised rights | Non-refundable upfront fees (and some related costs) | Licensing | Determining the nature of the entity’s promise | Sales-based or usage-based royalties | Repurchase agreements | A forward or a call option | A put option | Consignment arrangements | Bill-and-hold arrangements | Customer acceptance | Disclosure of disaggregated revenue

This appendix is an integral part of AASB 15. It describes the application of paragraphs 1–129 and has the same authority as the other parts of AASB 15.

B1

This application guidance is organised into the following categories:

(a)            performance obligations satisfied over time (paragraphs B2-B13);

(b)            methods for measuring progress towards complete satisfaction of a performance obligation (paragraphs B14–B19);

(c)            sale with a right of return (paragraphs B20–B27);

(d)            warranties (paragraphs B28–B33);

(e)            principal versus agent considerations (paragraphs B34–B38);

(f)            customer options for additional goods or services (paragraphs B39–B43);

(g)            customers’ unexercised rights (paragraphs B44–B47);

(h)            non-refundable upfront fees (and some related costs) (paragraphs B48–B51);

(i)             licensing (paragraphs B52–B63B);

(j)             repurchase agreements (paragraphs B64–B76);

(k)            consignment arrangements (paragraphs B77–B78);

(l)             bill-and-hold arrangements (paragraphs B79–B82);

(m)           customer acceptance (paragraphs B83–B86); and

(n)            disclosure of disaggregated revenue (paragraphs B87–B89).

Performance obligations satisfied over time

B2

In accordance with paragraph 35, a performance obligation is satisfied over time if one of the following criteria is met:

(a)            the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs (see paragraphs B3–B4);

(b)            the entity’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced (see paragraph B5); or

(c)            the entity’s performance does not create an asset with an alternative use to the entity (see paragraphs B6–B8) and the entity has an enforceable right to payment for performance completed to date (see paragraphs B9–B13).

Customer controls the asset as it is created or enhanced (paragraph 35(b))

B5

In determining whether a customer controls an asset as it is created or enhanced in accordance with paragraph 35(b), an entity shall apply the requirements for control in paragraphs 31–34 and 38. The asset that is being created or enhanced (for example, a work-in-progress asset) could be either tangible or intangible.

Entity’s performance does not create an asset with an alternative use (paragraph 35(c))

B6

In assessing whether an asset has an alternative use to an entity in accordance with paragraph 36, an entity shall consider the effects of contractual restrictions and practical limitations on the entity’s ability to readily direct that asset for another use, such as selling it to a different customer. The possibility of the contract with the customer being terminated is not a relevant consideration in assessing whether the entity would be able to readily direct the asset for another use.

Right to payment for performance completed to date (paragraph 35(c))

B9

In accordance with paragraph 37, an entity has a right to payment for performance completed to date if the entity would be entitled to an amount that at least compensates the entity for its performance completed to date in the event that the customer or another party terminates the contract for reasons other than the entity’s failure to perform as promised. An amount that would compensate an entity for performance completed to date would be an amount that approximates the selling price of the goods or services transferred to date (for example, recovery of the costs incurred by an entity in satisfying the performance obligation plus a reasonable profit margin) rather than compensation for only the entity’s potential loss of profit if the contract were to be terminated. Compensation for a reasonable profit margin need not equal the profit margin expected if the contract was fulfilled as promised, but an entity should be entitled to compensation for either of the following amounts:

(a)            a proportion of the expected profit margin in the contract that reasonably reflects the extent of the entity’s performance under the contract before termination by the customer (or another party); or

(b)            a reasonable return on the entity’s cost of capital for similar contracts (or the entity’s typical operating margin for similar contracts) if the contract-specific margin is higher than the return the entity usually generates from similar contracts.

Methods for measuring progress towards complete satisfaction of a performance obligation

B14

Methods that can be used to measure an entity’s progress towards complete satisfaction of a performance obligation satisfied over time in accordance with paragraphs 35–37 include the following:

(a)            output methods (see paragraphs B15–B17); and

(b)            input methods (see paragraphs B18–B19).

B19

A shortcoming of input methods is that there may not be a direct relationship between an entity’s inputs and the transfer of control of goods or services to a customer. Therefore, an entity shall exclude from an input method the effects of any inputs that, in accordance with the objective of measuring progress in paragraph 39, do not depict the entity’s performance in transferring control of goods or services to the customer. For instance, when using a cost-based input method, an adjustment to the measure of progress may be required in the following circumstances:

(a)            When a cost incurred does not contribute to an entity’s progress in satisfying the performance obligation. For example, an entity would not recognise revenue on the basis of costs incurred that are attributable to significant inefficiencies in the entity’s performance that were not reflected in the price of the contract (for example, the costs of unexpected amounts of wasted materials, labour or other resources that were incurred to satisfy the performance obligation).

(b)            When a cost incurred is not proportionate to the entity’s progress in satisfying the performance obligation. In those circumstances, the best depiction of the entity’s performance may be to adjust the input method to recognise revenue only to the extent of that cost incurred. For example, a faithful depiction of an entity’s performance might be to recognise revenue at an amount equal to the cost of a good used to satisfy a performance obligation if the entity expects at contract inception that all of the following conditions would be met:

(i)             the good is not distinct;

(ii)            the customer is expected to obtain control of the good significantly before receiving services related to the good;

(iii)           the cost of the transferred good is significant relative to the total expected costs to completely satisfy the performance obligation; and

(iv)           the entity procures the good from a third party and is not significantly involved in designing and manufacturing the good (but the entity is acting as a principal in accordance with paragraphs B34–B38).

B23

An entity shall apply the requirements in paragraphs 47–72 (including the requirements for constraining estimates of variable consideration in paragraphs 56–58) to determine the amount of consideration to which the entity expects to be entitled (ie excluding the products expected to be returned). For any amounts received (or receivable) for which an entity does not expect to be entitled, the entity shall not recognise revenue when it transfers products to customers but shall recognise those amounts received (or receivable) as a refund liability. Subsequently, at the end of each reporting period, the entity shall update its assessment of amounts for which it expects to be entitled in exchange for the transferred products and make a corresponding change to the transaction price and, therefore, in the amount of revenue recognised.

B27

Contracts in which a customer may return a defective product in exchange for a functioning product shall be evaluated in accordance with the guidance on warranties in paragraphs B28–B33.

B29

If a customer has the option to purchase a warranty separately (for example, because the warranty is priced or negotiated separately), the warranty is a distinct service because the entity promises to provide the service to the customer in addition to the product that has the functionality described in the contract. In those circumstances, an entity shall account for the promised warranty as a performance obligation in accordance with paragraphs 22–30 and allocate a portion of the transaction price to that performance obligation in accordance with paragraphs 73–86.

B30

If a customer does not have the option to purchase a warranty separately, an entity shall account for the warranty in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets unless the promised warranty, or a part of the promised warranty, provides the customer with a service in addition to the assurance that the product complies with agreed-upon specifications.

B33

A law that requires an entity to pay compensation if its products cause harm or damage does not give rise to a performance obligation. For example, a manufacturer might sell products in a jurisdiction in which the law holds the manufacturer liable for any damages (for example, to personal property) that might be caused by a consumer using a product for its intended purpose. Similarly, an entity’s promise to indemnify the customer for liabilities and damages arising from claims of patent, copyright, trademark or other infringement by the entity’s products does not give rise to a performance obligation. The entity shall account for such obligations in accordance with AASB 137.

Principal versus agent considerations

B34

When another party is involved in providing goods or services to a customer, the entity shall determine whether the nature of its promise is a performance obligation to provide the specified goods or services itself (ie the entity is a principal) or to arrange for those goods or services to be provided by the other party (ie the entity is an agent). An entity determines whether it is a principal or an agent for each specified good or service promised to the customer. A specified good or service is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer (see paragraphs 27–30). If a contract with a customer includes more than one specified good or service, an entity could be a principal for some specified goods or services and an agent for others.

AusB34.1

Notwithstanding paragraphs B34–B38, not-for-profit entities that are government departments shall apply the requirements of AASB 1050 Administered Items to administered items.

B34A

To determine the nature of its promise (as described in paragraph B34), the entity shall:

(a)            identify the specified goods or services to be provided to the customer (which, for example, could be a right to a good or service to be provided by another party (see paragraph 26)); and

(b)            assess whether it controls (as described in paragraph 33) each specified good or service before that good or service is transferred to the customer.

B35A

When another party is involved in providing goods or services to a customer, an entity that is a principal obtains control of any one of the following:

(a)            a good or another asset from the other party that it then transfers to the customer.

(b)            a right to a service to be performed by the other party, which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf.

(c)            a good or service from the other party that it then combines with other goods or services in providing the specified good or service to the customer. For example, if an entity provides a significant service of integrating goods or services (see paragraph 29(a)) provided by another party into the specified good or service for which the customer has contracted, the entity controls the specified good or service before that good or service is transferred to the customer. This is because the entity first obtains control of the inputs to the specified good or service (which includes goods or services from other parties) and directs their use to create the combined output that is the specified good or service.

B36

An entity is an agent if the entity’s performance obligation is to arrange for the provision of the specified good or service by another party. An entity that is an agent does not control the specified good or service provided by another party before that good or service is transferred to the customer. When (or as) an entity that is an agent satisfies a performance obligation, the entity recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party. An entity’s fee or commission might be the net amount of consideration that the entity retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party.

B37

Indicators that an entity controls the specified good or service before it is transferred to the customer (and is therefore a principal (see paragraph B35)) include, but are not limited to, the following:

(a)            the entity is primarily responsible for fulfilling the promise to provide the specified good or service. This typically includes responsibility for the acceptability of the specified good or service (for example, primary responsibility for the good or service meeting customer specifications). If the entity is primarily responsible for fulfilling the promise to provide the specified good or service, this may indicate that the other party involved in providing the specified good or service is acting on the entity’s behalf.

(b)            the entity has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer (for example, if the customer has a right of return). For example, if the entity obtains, or commits itself to obtain, the specified good or service before obtaining a contract with a customer, that may indicate that the entity has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the good or service before it is transferred to the customer.

(c)            the entity has discretion in establishing the price for the specified good or service. Establishing the price that the customer pays for the specified good or service may indicate that the entity has the ability to direct the use of that good or service and obtain substantially all of the remaining benefits. However, an agent can have discretion in establishing prices in some cases. For example, an agent may have some flexibility in setting prices in order to generate additional revenue from its service of arranging for goods or services to be provided by other parties to customers.

B37A

The indicators in paragraph B37 may be more or less relevant to the assessment of control depending on the nature of the specified good or service and the terms and conditions of the contract. In addition, different indicators may provide more persuasive evidence in different contracts.

B42

Paragraph 74 requires an entity to allocate the transaction price to performance obligations on a relative stand-alone selling price basis. If the stand-alone selling price for a customer’s option to acquire additional goods or services is not directly observable, an entity shall estimate it. That estimate shall reflect the discount that the customer would obtain when exercising the option, adjusted for both of the following:

(a)            any discount that the customer could receive without exercising the option; and

(b)            the likelihood that the option will be exercised.

Customers’ unexercised rights

B44

In accordance with paragraph 106, upon receipt of a prepayment from a customer, an entity shall recognise a contract liability in the amount of the prepayment for its performance obligation to transfer, or to stand ready to transfer, goods or services in the future. An entity shall derecognise that contract liability (and recognise revenue) when it transfers those goods or services and, therefore, satisfies its performance obligation.

B46

If an entity expects to be entitled to a breakage amount in a contract liability, the entity shall recognise the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. If an entity does not expect to be entitled to a breakage amount, the entity shall recognise the expected breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote. To determine whether an entity expects to be entitled to a breakage amount, the entity shall consider the requirements in paragraphs 56–58 on constraining estimates of variable consideration.

B49

To identify performance obligations in such contracts, an entity shall assess whether the fee relates to the transfer of a promised good or service. In many cases, even though a non-refundable upfront fee relates to an activity that the entity is required to undertake at or near contract inception to fulfil the contract, that activity does not result in the transfer of a promised good or service to the customer (see paragraph 25). Instead, the upfront fee is an advance payment for future goods or services and, therefore, would be recognised as revenue when those future goods or services are provided. The revenue recognition period would extend beyond the initial contractual period if the entity grants the customer the option to renew the contract and that option provides the customer with a material right as described in paragraph B40.

B50

If the non-refundable upfront fee relates to a good or service, the entity shall evaluate whether to account for the good or service as a separate performance obligation in accordance with paragraphs 22–30.

B51

An entity may charge a non-refundable fee in part as compensation for costs incurred in setting up a contract (or other administrative tasks as described in paragraph 25). If those setup activities do not satisfy a performance obligation, the entity shall disregard those activities (and related costs) when measuring progress in accordance with paragraph B19. That is because the costs of setup activities do not depict the transfer of services to the customer. The entity shall assess whether costs incurred in setting up a contract have resulted in an asset that shall be recognised in accordance with paragraph 95.

B53

In addition to a promise to grant a licence (or licences) to a customer, an entity may also promise to transfer other goods or services to the customer. Those promises may be explicitly stated in the contract or implied by an entity’s customary business practices, published policies or specific statements (see paragraph 24). As with other types of contracts, when a contract with a customer includes a promise to grant a licence (or licences) in addition to other promised goods or services, an entity applies paragraphs 22–30 to identify each of the performance obligations in the contract.

B54

If the promise to grant a licence is not distinct from other promised goods or services in the contract in accordance with paragraphs 26–30, an entity shall account for the promise to grant a licence and those other promised goods or services together as a single performance obligation. Examples of licences that are not distinct from other goods or services promised in the contract include the following:

(a)            a licence that forms a component of a tangible good and that is integral to the functionality of the good; and

(b)            a licence that the customer can benefit from only in conjunction with a related service (such as an online service provided by the entity that enables, by granting a licence, the customer to access content).

B55

If the licence is not distinct, an entity shall apply paragraphs 31–38 to determine whether the performance obligation (which includes the promised licence) is a performance obligation that is satisfied over time or satisfied at a point in time.

Determining the nature of the entity’s promise

B57

[Deleted]

B58

The nature of an entity’s promise in granting a licence is a promise to provide a right to access the entity’s intellectual property if all of the following criteria are met:

(a)            the contract requires, or the customer reasonably expects, that the entity will undertake activities that significantly affect the intellectual property to which the customer has rights (see paragraphs B59 and B59A);

(b)            the rights granted by the licence directly expose the customer to any positive or negative effects of the entity’s activities identified in paragraph B58(a); and

(c)            those activities do not result in the transfer of a good or a service to the customer as those activities occur (see paragraph 25).

B60

If the criteria in paragraph B58 are met, an entity shall account for the promise to grant a licence as a performance obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the entity’s performance of providing access to its intellectual property as the performance occurs (see paragraph 35(a)). An entity shall apply paragraphs 39–45 to select an appropriate method to measure its progress towards complete satisfaction of that performance obligation to provide access.

B61

If the criteria in paragraph B58 are not met, the nature of an entity’s promise is to provide a right to use the entity’s intellectual property as that intellectual property exists (in terms of form and functionality) at the point in time at which the licence is granted to the customer. This means that the customer can direct the use of, and obtain substantially all of the remaining benefits from, the licence at the point in time at which the licence transfers. An entity shall account for the promise to provide a right to use the entity’s intellectual property as a performance obligation satisfied at a point in time. An entity shall apply paragraph 38 to determine the point in time at which the licence transfers to the customer. However, revenue cannot be recognised for a licence that provides a right to use the entity’s intellectual property before the beginning of the period during which the customer is able to use and benefit from the licence. For example, if a software licence period begins before an entity provides (or otherwise makes available) to the customer a code that enables the customer to immediately use the software, the entity would not recognise revenue before that code has been provided (or otherwise made available).

Sales-based or usage-based royalties

B63

Notwithstanding the requirements in paragraphs 56–59, an entity shall recognise revenue for a sales-based or usage-based royalty promised in exchange for a licence of intellectual property only when (or as) the later of the following events occurs:

(a)            the subsequent sale or usage occurs; and

(b)            the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied).

B63A

The requirement for a sales-based or usage-based royalty in paragraph B63 applies when the royalty relates only to a licence of intellectual property or when a licence of intellectual property is the predominant item to which the royalty relates (for example, the licence of intellectual property may be the predominant item to which the royalty relates when the entity has a reasonable expectation that the customer would ascribe significantly more value to the licence than to the other goods or services to which the royalty relates).

B63B

When the requirement in paragraph B63A is met, revenue from a sales-based or usage-based royalty shall be recognised wholly in accordance with paragraph B63. When the requirement in paragraph B63A is not met, the requirements on variable consideration in paragraphs 50–59 apply to the sales-based or usage-based royalty.

A forward or a call option

B66

If an entity has an obligation or a right to repurchase the asset (a forward or a call option), a customer does not obtain control of the asset because the customer is limited in its ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset even though the customer may have physical possession of the asset. Consequently, the entity shall account for the contract as either of the following:

(a)            a lease in accordance with AASB 16 Leases if the entity can or must repurchase the asset for an amount that is less than the original selling price of the asset, unless the contract is part of a sale and leaseback transaction. If the contract is part of a sale and leaseback transaction, the entity shall continue to recognise the asset and shall recognise a financial liability for any consideration received from the customer. The entity shall account for the financial liability in accordance with AASB 9; or

(b)            a financing arrangement in accordance with paragraph B68 if the entity can or must repurchase the asset for an amount that is equal to or more than the original selling price of the asset.

A put option

B70

If an entity has an obligation to repurchase the asset at the customer’s request (a put option) at a price that is lower than the original selling price of the asset, the entity shall consider at contract inception whether the customer has a significant economic incentive to exercise that right. The customer’s exercising of that right results in the customer effectively paying the entity consideration for the right to use a specified asset for a period of time. Therefore, if the customer has a significant economic incentive to exercise that right, the entity shall account for the agreement as a lease in accordance with AASB 16, unless the contract is part of a sale and leaseback transaction. If the contract is part of a sale and leaseback transaction, the entity shall continue to recognise the asset and shall recognise a financial liability for any consideration received from the customer. The entity shall account for the financial liability in accordance with AASB 9.

B72

If the customer does not have a significant economic incentive to exercise its right at a price that is lower than the original selling price of the asset, the entity shall account for the agreement as if it were the sale of a product with a right of return as described in paragraphs B20–B27.

B73

If the repurchase price of the asset is equal to or greater than the original selling price and is more than the expected market value of the asset, the contract is in effect a financing arrangement and, therefore, shall be accounted for as described in paragraph B68.

B74

If the repurchase price of the asset is equal to or greater than the original selling price and is less than or equal to the expected market value of the asset, and the customer does not have a significant economic incentive to exercise its right, then the entity shall account for the agreement as if it were the sale of a product with a right of return as described in paragraphs B20–B27.

B80

An entity shall determine when it has satisfied its performance obligation to transfer a product by evaluating when a customer obtains control of that product (see paragraph 38). For some contracts, control is transferred either when the product is delivered to the customer’s site or when the product is shipped, depending on the terms of the contract (including delivery and shipping terms). However, for some contracts, a customer may obtain control of a product even though that product remains in an entity’s physical possession. In that case, the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the product even though it has decided not to exercise its right to take physical possession of that product. Consequently, the entity does not control the product. Instead, the entity provides custodial services to the customer over the customer’s asset.

B82

If an entity recognises revenue for the sale of a product on a bill-and-hold basis, the entity shall consider whether it has remaining performance obligations (for example, for custodial services) in accordance with paragraphs 22–30 to which the entity shall allocate a portion of the transaction price in accordance with paragraphs 73–86.

Customer acceptance

B83

In accordance with paragraph 38(e), a customer’s acceptance of an asset may indicate that the customer has obtained control of the asset. Customer acceptance clauses allow a customer to cancel a contract or require an entity to take remedial action if a good or service does not meet agreed-upon specifications. An entity shall consider such clauses when evaluating when a customer obtains control of a good or service.

Disclosure of disaggregated revenue

B87

Paragraph 114 requires an entity to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Consequently, the extent to which an entity’s revenue is disaggregated for the purposes of this disclosure depends on the facts and circumstances that pertain to the entity’s contracts with customers. Some entities may need to use more than one type of category to meet the objective in paragraph 114 for disaggregating revenue. Other entities may meet the objective by using only one type of category to disaggregate revenue.

B89

Examples of categories that might be appropriate include, but are not limited to, all of the following:

(a)            type of good or service (for example, major product lines);

(b)            geographical region (for example, country or region);

(c)            market or type of customer (for example, government and non-government customers);

(d)            type of contract (for example, fixed-price and time-and-materials contracts);

(e)            contract duration (for example, short-term and long-term contracts);

(f)            timing of transfer of goods or services (for example, revenue from goods or services transferred to customers at a point in time and revenue from goods or services transferred over time); and

(g)            sales channels (for example, goods sold directly to consumers and goods sold through intermediaries).

Appendix C -- Effective date and transition

Effective date | Transition | References to AASB 9 | Withdrawal of other Standards

This appendix is an integral part of AASB 15 and has the same authority as the other parts of AASB 15.

Effective date

C1

An entity shall apply this Standard for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted. If an entity applies this Standard earlier, it shall disclose that fact.

AusC1.1

Notwithstanding paragraph C1, this Standard applies to not-for-profit entities for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted, provided that AASB 1058 Income of Not-for-Profit Entities is also applied to the same period. If a not-for-profit entity applies this Standard earlier, it shall disclose that fact.

AusC1.2

Notwithstanding paragraph AusC1.1, not-for-profit entities may elect not to apply this Standard to research grants until annual reporting periods beginning on or after 1 July 2019. If a not-for-profit entity applies this Standard to research grants prior to that, it shall also apply AASB 1058 to research grants at the same time.

C1A

AASB 16 Leases, issued in February 2016, amended paragraphs 5, 97, B66 and B70. An entity shall apply those amendments when it applies AASB 16.

C1B

AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15, issued in May 2016, amended paragraphs 26, 27, 29, B1, B34–B38, B52–B53, B58, C2, C5 and C7, deleted paragraph B57 and added paragraphs B34A, B35A, B35B, B37A, B59A, B63A, B63B, C7A and C8A. An entity shall apply those amendments for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact.

AusC2.1

In respect of not-for-profit entities, the reference in paragraph C2(b) to a completed contract also includes contracts for which the entity has recognised all of the revenue in accordance with AASB 1004 Contributions, or revenue in combination with a provision in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

C3

An entity shall apply this Standard using one of the following two methods:

(a)            retrospectively to each prior reporting period presented in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, subject to the expedients in paragraph C5; or

(b)            retrospectively with the cumulative effect of initially applying this Standard recognised at the date of initial application in accordance with paragraphs C7–C8.

C4

Notwithstanding the requirements of paragraph 28 of AASB 108, when this Standard is first applied, an entity need only present the quantitative information required by paragraph 28(f) of AASB 108 for the annual reporting period immediately preceding the first annual reporting period for which this Standard is applied (the ‘immediately preceding period’) and only if the entity applies this Standard retrospectively in accordance with paragraph C3(a). An entity may also present this information for the current period or for earlier comparative periods, but is not required to do so.

C5

An entity may use one or more of the following practical expedients when applying this Standard retrospectively in accordance with paragraph C3(a):

(a)            for completed contracts, an entity need not restate contracts that:

(i)             begin and end within the same annual reporting period; or

(ii)            are completed contracts at the beginning of the earliest period presented.

(b)            for completed contracts that have variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods.

(c)            for contracts that were modified before the beginning of the earliest period presented, an entity need not retrospectively restate the contract for those contract modifications in accordance with paragraphs 20–21. Instead, an entity shall reflect the aggregate effect of all of the modifications that occur before the beginning of the earliest period presented when:

(i)             identifying the satisfied and unsatisfied performance obligations;

(ii)            determining the transaction price; and

(iii)           allocating the transaction price to the satisfied and unsatisfied performance obligations.

(d)            for all reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the entity expects to recognise that amount as revenue (see paragraph 120).

C6

For any of the practical expedients in paragraph C5 that an entity uses, the entity shall apply that expedient consistently to all contracts within all reporting periods presented. In addition, the entity shall disclose all of the following information:

(a)            the expedients that have been used; and

(b)            to the extent reasonably possible, a qualitative assessment of the estimated effect of applying each of those expedients.

C7

If an entity elects to apply this Standard retrospectively in accordance with paragraph C3(b), the entity shall recognise the cumulative effect of initially applying this Standard as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application. Under this transition method, an entity may elect to apply this Standard retrospectively only to contracts that are not completed contracts at the date of initial application (for example, 1 January 2018 for an entity with a 31 December year-end).

C7A

An entity applying this Standard retrospectively in accordance with paragraph C3(b) may also use the practical expedient described in paragraph C5(c), either:

(a)            for all contract modifications that occur before the beginning of the earliest period presented; or

(b)            for all contract modifications that occur before the date of initial application.

If an entity uses this practical expedient, the entity shall apply the expedient consistently to all contracts and disclose the information required by paragraph C6.

C8A

An entity shall apply AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 (see paragraph C1B) retrospectively in accordance with AASB 108. In applying the amendments retrospectively, an entity shall apply the amendments as if they had been included in AASB 15 at the date of initial application. Consequently, an entity does not apply the amendments to reporting periods or to contracts to which the requirements of AASB 15 are not applied in accordance with paragraphs C2–C8. For example, if an entity applies AASB 15 in accordance with paragraph C3(b) only to contracts that are not completed contracts at the date of initial application, the entity does not restate the completed contracts at the date of initial application of AASB 15 for the effects of these amendments.

References to AASB 9

C9

If an entity applies this Standard but does not yet apply AASB 9 Financial Instruments, any reference in this Standard to AASB 9 shall be read as a reference to AASB 139 Financial Instruments: Recognition and Measurement.

Withdrawal of other Standards

C10

[Deleted by the AASB]

Appendix E -- Australian simplified disclosures for Tier 2 entities

This appendix is an integral part of the Standard.

AusE1

Paragraphs 110–129 and B87–B89 do not apply to entities preparing general purpose financial statements that apply AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities.

Appendix F -- Australian implementation guidance for not-for-profit entities

Introduction | Identifying whether a contract with a customer exists | Customer | Contract | Enforceable agreement | Commercial substance | Identifying whether a performance obligation exists | Allocating the transaction price to performance obligations

This appendix is an integral part of AASB 15 and has the same authority as other parts of the Standard. The appendix applies only to not-for-profit entities.

Introduction

F1

AASB 15 Revenue from Contracts with Customers incorporates International Financial Reporting Standard IFRS 15 Revenue from Contracts with Customers, issued by the International Accounting Standards Board. Consequently, the text of AASB 15 is generally expressed from the perspective of for-profit entities in the private sector. The AASB has prepared this appendix to explain and illustrate the principles in the Standard from the perspective of not-for-profit entities in the private and public sectors, particularly to address circumstances where a for-profit perspective does not readily translate to a not-for-profit perspective. The appendix does not apply to for-profit entities or affect their application of AASB 15.

F2

AASB 15 provides guidance on the following five elements of a contract with a customer:

(a)            identifying a contract (paragraphs 9–21);

(b)            identifying performance obligations (paragraphs 22–30);

(c)            determining the transaction price (paragraphs 46–72);

(d)            allocating the transaction price to performance obligations (paragraphs 73–90); and

(e)            recognising revenue (paragraphs 31–45).

F3

This appendix should be read in conjunction with the requirements of this Standard.

F4

This appendix provides guidance to assist not-for-profit entities to determine whether particular transactions or other events, or components thereof, are within the scope of this Standard, in particular in relation to identifying a contract and identifying performance obligations. If a transaction is outside the scope of this Standard, the recognition and measurement of income arising from the transaction may instead be specified by another Standard, for example AASB 1058 Income of Not-for-Profit Entities.

Identifying whether a contract with a customer exists

F5

A contract is an agreement between two or more parties that creates enforceable rights and obligations. If a not-for-profit entity’s promise to transfer a good or service is made in an unenforceable arrangement with another party, a contract with a customer does not exist. If a not-for-profit entity’s promise to transfer a good or service in an arrangement with another party fails the ‘sufficiently specific’ criterion discussed in paragraphs F20–F26, a contract with a customer does not exist and the entity shall not treat the promise as a performance obligation in a contract with a customer. Where a contract with a customer does not exist, the not-for-profit entity shall consider whether AASB 1058 is applicable.

Customer

F6

In contracts with customers, the ‘customer’ is the party that promises consideration in exchange for goods or services that are an output of the entity’s ordinary activities. However, in contracts with customers in any sector, the customer might direct that goods or services are to be provided to third-party beneficiaries (including individuals or the community at large) on the customer’s behalf. In these contracts:

(a)            the customer remains the party that has contracted with the entity for those goods or services and promises consideration in exchange for those goods or services; and

(b)            the provision of goods or services to third-party beneficiaries is a characteristic of the promised transfer of goods or services to the customer.

F7

For example, a not-for-profit entity in the private sector may receive consideration from a government for the specified purpose of providing first-aid training free of charge to members of the community. The government is the customer because it has contracted the entity to provide the first-aid training services. This conclusion is not affected by the fact that the government specifies that those services are to be provided to members of the community.

Contract

F8

In relation to the definition of ‘contract’ in Appendix A, the reference to an ‘agreement’ in that definition shall be read by not-for-profit entities as encompassing an arrangement entered into under the direction of another party (for example, when assets are transferred to an entity with a directive that they be deployed to provide specified services).

F9

Paragraph 10 states that contracts can be written, oral or implied by an entity’s customary business practices. The customary business practices of a not-for-profit entity refer to that entity’s customary practice in performing or conducting its activities.

Enforceable agreement

F10

An inherent feature of a contract with a customer is that the entity makes promises in an agreement that creates enforceable rights and obligations. Paragraphs F11–F18 provide guidance for not-for-profit entities on when an agreement creates enforceable rights and obligations.

F11

An agreement is enforceable when a separate party is able to enforce it through legal or equivalent means. It is not necessary for each promise in the agreement to transfer goods or services to be enforceable by legal or equivalent means, as long as some enforceable obligations of the entity arise from the agreement. For an agreement to be enforceable by a separate party through ‘equivalent means’, the presence of a mechanism outside the legal system that establishes the right of a separate party to oblige the entity to act in a particular way or be subject to consequence is required.

F12

An agreement typically is enforceable by another party through legal or equivalent means if the agreement is in writing and includes sufficiently specific requirements of the parties. Oral agreements also may be enforceable. Enforceability needs to be considered in relation to both the particular terms of an agreement and any additional terms agreed by the parties as a result of further discussions or actions. Examples of terms that result in enforceable agreements include the following:

(a)            a refund in cash or kind is required when the agreed specific performance has not occurred;

(b)            the customer, or another party acting on its behalf, has a right to enforce specific performance or claim damages;

(c)            the customer has the right to take a financial interest in assets purchased or constructed by the entity with resources provided under the agreement;

(d)            the parties to the agreement are required to agree on alternative uses of the resources provided under the agreement; and

(e)            an administrative process exists to enforce agreements between sovereign States or between a State and another party.

F13

A sufficiently specific, written agreement can be enforceable even if the particular terms do not include refund or other enforcement provisions, since Australian law generally provides remedies of specific performance or damages for breach of an agreement. Agreements that explicitly state they are not intended to be legally binding may nonetheless become enforceable agreements if the parties act in a manner that is inconsistent with the stated intention. Agreements that lack elements of a contract may nonetheless become legally enforceable if there is conduct by one party that causes the other party to act in reliance on such conduct. The enforceability of agreements does not depend on their form. For example, documents such as Memoranda of Understanding, Heads of Agreement and Letters of Intent can constitute legally enforceable agreements; a formal contract is not required.

F14

In respect of not-for-profit entities, enforcement mechanisms may arise from administrative arrangements or statutory provisions. An example of such an enforcement mechanism is a directive given by a Minister or government department to a public sector entity controlled by the government to which the Minister or government department belongs. The ministerial authority to require a transfer of goods or services would be sufficient for an agreement to be enforceable by a separate party through legal or equivalent means.

F15

In relation to paragraph F11, a consequence for failing to transfer promised goods or services could be either a return of consideration or a penalty for non-performance that is sufficiently severe to compel the entity to fulfil its promise to transfer goods or services. In some circumstances, where rights to specific performance are unavailable or unnecessary, the authority to require compensation may be the key determinant of the enforceability of an agreement involving a promise to transfer goods or services. A capacity to impose a severe penalty for non-performance can exist without a capacity to require a return of transferred assets or assets of equivalent value.

F16

Identification of an agreement as being enforceable by another party through legal or equivalent means does not require a history of enforcement of similar agreements by the customer or even an intention of the customer to enforce its rights. A customer might choose not to enforce its rights against an entity. However, that decision is at the customer’s discretion, and does not affect the enforceability of the customer’s rights. Enforceability depends solely on the customer’s capacity to enforce its rights.

F17

In contrast to the factors in paragraph F11, the following circumstances would not, of themselves, cause an agreement involving a promise to transfer goods or services to be enforceable by another party through legal or equivalent means:

(a)            a transferor has the capacity to withhold future funding to which the entity is not presently entitled; and

(b)            a not-for-profit entity publishes a statement of intent to spend money or consume assets in particular ways. The statement of intent is generally in the nature of a public policy statement, and does not identify parties who could enforce the statement. Such a statement of intent would, of itself, be insufficient to create an enforceable agreement, even if that statement is the subject of budget-to-actual reporting and of other oversight mechanisms to discharge accountability for the raising of funds, expenditure or consumption of assets. This is in contrast to a letter of intent which is typically an agreement between specifically identified parties. See also paragraph Aus26.1 of AASB 137.

F18

In relation to paragraph F17(a), a transferor’s capacity to withhold future funding to which the entity is not presently entitled can be distinguished from circumstances in which a transferor presently holds refund rights, or has the capacity to impose a severe penalty, in the event of the transferee’s non-performance, but might choose to obtain such a refund or impose such a penalty by deducting the amount of the refund or penalty from a future transfer to the entity. For example, a transferor’s capacity to withhold future funding to which the transferee is not presently entitled would differ from circumstances in which a transferor could demand a refund of granted assets in the event of the transferee’s non-performance, regardless of whether it makes any future transfers to the transferee, but chooses for convenience to deduct the refund amount from a future transfer. In this latter case, the transferor could enforce against the entity a promise to provide goods or services.

Commercial substance

F19

Paragraph 9(d) specifies that the Standard applies to a contract with a customer only if (among other criteria) the contract has commercial substance (ie the risk, timing or amount of the entity’s future cash flows is expected to change as a result of the contract). A contract may have ‘commercial substance’, for the purposes of paragraph 9(d), even if it is entered into by a not-for-profit entity for purposes that, in everyday language, would be considered ‘non-commercial’ (for example, contracts to provide goods or services to members of the community on a subsidised or cost-recovery basis). This is because contracts to provide goods or services without generating a commercial return may nonetheless cause a change in the risk, timing or amount of the not-for-profit entity’s future cash flows. Accordingly, for the purposes of application of the Standard by not-for-profit entities, ‘commercial substance’ shall be read as a reference to economic substance (ie giving rise to substantive rights and obligations).

Identifying whether a performance obligation exists

F20

Paragraphs 22 and 30 of AASB 15 require that to enable an entity to identify the performance obligations that it should account for separately, each promise to transfer goods or services needs to be distinct – individually, or if not individually, as a bundle combined with other promises. The specificity of the promise to transfer goods or services can be quite different in the for-profit and not-for-profit sectors. A necessary condition for identifying a performance obligation of a not-for-profit entity is that the promise is sufficiently specific to be able to determine when the obligation is satisfied. Judgement is necessary to assess whether a promise is sufficiently specific. Such judgement takes into account any conditions specified in the arrangement, whether explicit or implicit, regarding the promised goods or services, including conditions regarding the following aspects:

(a)            the nature or type of the goods or services;

(b)            the cost or value of the goods or services;

(c)            the quantity of the goods or services; and

(d)            the period over which the goods or services must be transferred.

F21

In the not-for-profit context, a service can include an arrangement whereby one entity undertakes specific activities on behalf of another entity. Activities may include service delivery, research or asset management, among others. However, performance obligations do not include activities that an entity must undertake to fulfil a contract unless those activities transfer a good or service to a customer. For example, research activities undertaken to develop intellectual property that the entity will license to a customer are not themselves a transfer of goods or services to the customer.

F22

Whether a promise is sufficiently specific so as to qualify as a performance obligation is assessed separately for each promise and will depend on the facts and circumstances. No specific number or combination of the conditions noted in paragraph F20 need to be specified in an agreement for the promise to be sufficiently specific. In addition, there may be other conditions that need to be taken into account in applying the judgement above that may indicate the promise is sufficiently specific.

F23

Conditions specified regarding the promised goods or services may be explicit or implicit in an agreement. Paragraph 24 states that the performance obligations identified in a contract with a customer may not be limited to the goods or services that are explicitly stated in that contract. This is because a contract with a customer may also include promises that are implied by an entity’s customary business practices, published policies or specific statements if, at the time of entering into the contract, those promises create a valid expectation of the customer that the entity will transfer a good or service to the customer. A not-for-profit entity may make a statement of intent to spend a transfer in a particular way. As noted in paragraph F17(b), a statement of intent alone is generally not enough to create a performance obligation. Some element of the contract will need to be enforceable and past practice would need to support the customer expectation.

F24

In relation to paragraph F20(d), a condition that a not-for-profit entity must transfer unspecified goods or services within a particular period does not, of itself, meet the ‘sufficiently specific’ criterion. For example, a not-for-profit entity may provide a number of services under its charter such as counselling and housing to disadvantaged youth. Where it receives a transfer to be used for an unspecified purpose over a particular time period, such a promise would not meet the ‘sufficiently specific’ criterion.

F25

Some not-for-profit entities have a single purpose charter, such as to provide counselling services. However, it is unlikely that an entity’s charter or stated objectives would be specific enough to require the recognition of contract liabilities under a contract that provided the entity with a grant for a specified period of time but did not also adequately identify the goods or services to be provided to other parties. Where entities receive a transfer to be used over a particular time period for specified services, such a transfer could meet the ‘sufficiently specific’ criterion. Specifying the services to be provided under the arrangement and the stipulation to use the transferred funds over a particular time period enables a determination of when the services have been provided. However, if the transfer does not specify the period over which the entity must use the funds or the services to be provided (such as the number of counselling sessions), the entity would not meet the ‘sufficiently specific’ criterion because it would be unable to determine when it meets the performance obligations.

F26

An agreement may include a condition that the entity undertakes an acquittal process to demonstrate progress toward transferring goods or services. For example, the terms of an agreement may require the entity to report on progress toward specified outputs or outcomes in an acquittal process. Such an acquittal process may provide evidence of a promise to transfer goods or services that is sufficiently specific, depending on the requirements of the acquittal process and other facts and circumstances. An acquittal process may also enable a determination of progress toward satisfaction of the performance obligation.

F27

Where a contract provides a transfer of a financial asset for an entity to acquire or construct a non-financial asset (eg a building or an intangible asset) that is to be controlled by the entity, the contract does not establish rights and obligations for the transfer of the non-financial asset to the transferor or other parties. Accordingly, the contract is not a contract with a customer, and hence is not accounted for in accordance with AASB 15. Such contracts are instead accounted for in accordance with paragraphs 15–17 of AASB 1058. In this case, the transferor has made an in-substance transfer of the non-financial asset to the entity. The entity would retain control of the non-financial asset and use it in its operations, such as to produce goods or services for transfer to other parties under other contracts. A contract to transfer a financial asset for an entity to acquire or construct a non-financial asset that is to be controlled by the entity may be part of a contract that includes other conditions that give rise to performance obligations that require the entity to transfer goods or services to other entities. Those performance obligations are accounted for under AASB 15.

Allocating the transaction price to performance obligations

F28

A customer may enter into a contract with a not-for-profit entity with a dual purpose of obtaining goods or services and to help the not-for-profit entity achieve its objectives. An entity shall allocate the transaction price to each performance obligation so that the performance obligation allocation depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer. This is based on the rebuttable presumption that the transaction price is treated as wholly related to the transfer of promised goods or services.

F29

The presumption is rebutted where the transaction price is partially refundable in the event the entity does not deliver the promised goods or services.

F30

Where the presumption is rebutted, the entity shall disaggregate the transaction price and account for the component that relates to the transfer of promised goods or services in accordance with this Standard. The remainder of the transaction price shall be accounted for in accordance with AASB 1058. Whether the element not related to the performance obligation is material, and therefore needs to be accounted for separately, shall be assessed in relation to the individual contract, without reassessment at an aggregate or portfolio level.

F31

To disaggregate the component that relates to the promised goods or services, the following may be indicative of an element that is not related to the promised goods or services (and more likely to be for the purpose of enabling the not-for-profit entity to further its objectives):

(a)            a non-refundable component of the transaction price; and

(b)            where the entity has the status of a deductible gift recipient – the donor can claim part of the transaction price as a tax deduction for a donation.

F32

For example, a not-for-profit heritage foundation sells on-line subscriptions that provide access for a year to particular heritage sites (a promised service to each customer) and invites subscribers to, in addition, donate a non-refundable nominated amount to generally assist the foundation in pursuing its mission. Such a donation, which is voluntary for a subscriber, is separately identifiable from the price of the annual subscription. However, if the annual subscription fee and the donation were both refundable if access were not provided for the entire subscription period, the presumption in paragraph F28 could not be rebutted as the transaction price is refundable in full. In that case, the donation amount would not be accounted for separately but would be included in the transaction price that is allocated to the performance obligation to provide membership access. Consequently, the donation amount would be recognised as revenue when (or as) performance obligations under the arrangement are satisfied in accordance with AASB 15. Similarly, if both elements were equally proportionately refundable to acknowledge access already provided during the year, or if neither element were refundable, then no separation is required as the presumption is not rebutted.

Appendix G -- Australian implementation guidance for not-for-profit public sector licensors

Overview – Accounting framework for licences issued by not-for-profit public sector licensors | Introduction | Distinguishing a licence from a tax | Non-contractual licences arising from statutory requirements | Types of licences issued by not-for-profit public sector licensors | IP licences | Non-IP licences | Identifying performance obligations | Identifying the customer | Identifying the goods or services | Licences distinct from other goods and services | Recognition exemption: low-value licences (paragraphs Aus8.1–Aus8.3) | Recognition exemption: short-term licences (paragraphs Aus8.1–Aus8.5)

This appendix is an integral part of AASB 15 and has the same authority as other parts of the Standard. The appendix applies only to not-for-profit public sector licensors.

Overview – Accounting framework for licences issued by not-for-profit public sector licensors

G1

The diagram below summarises the accounting requirements under AASB 15 applicable to not-for-profit public sector licensors when determining how to account for revenue from licences. The diagram should be read in conjunction with the guidance set out in paragraphs G2–G27, and as referenced in the diagram.

Summary of AASB 15 accounting requirements

Introduction

G2

AASB 15 Revenue from Contracts with Customers incorporates International Financial Reporting Standard IFRS 15 Revenue from Contracts with Customers, issued by the International Accounting Standards Board. Consequently, the text of AASB 15 is generally expressed from the perspective of for-profit entities in the private sector. AASB 15 provides explicit Application Guidance for intellectual property (IP) licences. It does not provide explicit guidance for non-IP licences. The AASB has prepared this Appendix to explain and illustrate the principles in the Standard from the perspective of not-for-profit public sector licensors with respect to non-IP licences. The Appendix does not apply to for-profit entities or not-for-profit private sector entities, or affect their application of AASB 15.

Distinguishing a licence from a tax

G3

In determining whether a transaction is a licence subject to this Standard, as distinct from a tax subject to AASB 1058 Income of Not-for-Profit Entities[1], the following features are pertinent. These features are not an exhaustive list and not all features need to be present for an arrangement to be a licence:

Feature 

Licence

Tax

(a)    Is the arrangement discretionary rather than compulsory for the payer?

Discretionary
(eg payer – the licensee – has discretion over whether to perform an activity that requires permission and it is not compulsory if payment not made to retrospectively obtain the right, but subject to fines or other penalties)

Compulsory
(eg non-discretionary payments for activities that are necessary for the entity to operate, for example earning revenue, and it is compulsory to pay the base amount in addition to penalty fees and interest)

(b)    What is the primary purpose?

Non-financial purpose (eg equitable allocation of a public resource)

Generating income for the public sector entity (eg very high proceeds in relation to the costs incurred might be indicative of a tax element)

(c)    Does the arrangement create direct rights to use or access an asset for the payer, or perform an activity, and, depending on the type of arrangement, direct obligations of the payee?

Creates direct rights for the payer (licensee), and could create direct obligations for the payee (licensor)

No specific rights for the payer or obligations for the payee

(d)    Does the arrangement give the payer specific permission that must be obtained prior to performing an activity or using or accessing a resource of the payee that would otherwise be unlawful?

Yes

No

(e)    Does the arrangement transfer control of the payee’s underlying asset?

No

Not relevant

1

AASB 1058 defines taxes as “Economic benefits compulsorily paid or payable to public sector entities in accordance with laws and/or regulations established to provide income to the government. Taxes exclude fines.”

G4

A not-for-profit public sector entity may enter into an arrangement with a dual purpose of issuing a licence and imposing a tax. Consistent with paragraph F28 of AASB 15, the rebuttable presumption is for the not-for-profit public sector licensor to allocate the transaction price wholly to the promise to issue a licence.

G5

The presumption is rebutted if one of the following criteria are satisfied:

(a)            the transaction price is partially refundable in the event the entity does not issue the licence; or

(b)            a similar activity effected through a different transaction or organisational structure is subject to a tax, providing evidence of the composite nature of the arrangement or there is other evidence supporting that there is a tax not specific to the licencing arrangement.

G6

Where the presumption is rebutted the entity shall disaggregate the transaction price and account for the component that relates to the licence in accordance with AASB 15. The remainder of the transaction price that is determined to be a tax shall be accounted for in accordance with AASB 1058. Whether the element not related to the licence is material, and therefore needs to be accounted for separately, shall be assessed in relation to the individual arrangement, without reassessment at an aggregate or portfolio level.

G7

For example, a casino licence permits gaming activities to be conducted. Similar gaming activities are also conducted online by third parties who are not subject to a casino or any other kind of licence and are taxed at a rate of 10 per cent of proceeds received. This provides evidence that the casino arrangement contains both a licence and a tax and that the presumption in G4 should be rebutted. The tax rate charged to the third party provides evidence of the amount that should be disaggregated as the tax component.

Non-contractual licences arising from statutory requirements

G8

The scope of AASB 15 is underpinned by the definition of a contract in Appendix A, which is an agreement between two or more parties that creates enforceable rights and obligations. When determining whether a licence is a contract with a customer a not-for-profit public sector entity shall consider paragraphs F5–F19 of AASB 15, also having regard to paragraphs G9 and G10.

G9

Enforceable rights and obligations between parties may arise from statutory requirements even though no contractual relationship exists. For example, a not-for-profit public sector entity may enter into an agreement with another entity without satisfying the formative elements required to establish a contract (such as the reciprocal intention to create legal relations). Similarly, where an involuntary payment is made to obtain a licence, the arrangement may not be considered a contract under Australian law, despite being economically similar to a contractual relationship.

G10

Determining whether a licence issued by a not-for-profit public sector licensor is created by contract or by statute alone may require significant analysis as to whether there is sufficient ‘voluntariness’ and ‘reciprocity’ to evidence an intention to create a contract, particularly where a voluntary decision to undertake an activity results in an involuntary fee. However, the requirements of AASB 15 focus on whether enforceable rights and obligations are present, and as noted in paragraph F13, the enforceability of agreements does not depend on their form. Accordingly, a licence issued by a not-for-profit public sector licensor, with enforceable rights and obligations, would be within the scope of AASB 15 (subject to the other requirements of the Standard) regardless of whether it is considered under Australian law to have been created by contract or by statute.

Types of licences issued by not-for-profit public sector licensors

G11

Paragraphs B52–B63B describe the application of AASB 15 to licences of intellectual property (IP). Licences issued by not-for-profit public sector licensors extend beyond IP licences to include licensing arrangements in which the licence does not relate to IP (ie non‑IP licences).

IP licences

G12

Not-for-profit public sector licensors shall apply the Application Guidance in paragraphs B52–B63B to account for the revenue from licences of IP, unless the licensor decides to apply the recognition exemptions set out in paragraphs Aus8.1–Aus8.5.

G13

AASB 15 does not define IP, and consequently judgement is required in determining whether a licence is a licence of IP or not. Paragraph B52 notes that IP may include, but is not limited to, any of the following:

(a)            software and technology;

(b)            motion pictures, music and other forms of media and entertainment;

(c)            franchises; and

(d)            patents, trademarks and copyrights.

G14

IP may also arise from research activities. Example 3 in paragraph IE3 provides an example of accounting for such a licence.

Non-IP licences

G15

Where a not-for-profit public sector licensor determines that a licence is a non-IP licence, the licensor shall consider whether the licence is for:

(a)            rights over the licensor’s identified asset(s), in which case the arrangement might be a lease (or contain a lease), and fall within the scope of AASB 16;

(b)            rights over the licensor’s non-identified asset(s), in which case the licence might:

(i)             not be distinct from other promised goods or services in the arrangement, and shall therefore be combined with the other goods or services and accounted for as a bundle of goods or services (see paragraphs G20 and G21); or

(ii)            be distinct from other promised goods or services, and shall therefore be accounted for as a separate performance obligation in accordance with the principles of AASB 15 (see paragraphs G16–G21 for guidance on applying certain aspects of the principles). The Application Guidance for licences of IP in paragraphs B52–B63B shall not be applied to this type of licence; or

(c)            the right to perform an activity, which would not involve an asset or assets of the licensor, and if distinct from other goods or services, shall be accounted for as a separate performance obligation in accordance with the principles of AASB 15 (see paragraphs G16–G21 for guidance on applying certain aspects of the principles). The Application Guidance for licences of IP in paragraphs B52–B63B shall not be applied to this type of licence.

Identifying performance obligations

G16

Where a licensor issues a non-IP licence that transfers to the licensee either rights over the licensor’s non-identified assets or a right to the licensee to perform an activity (that does not involve an asset or assets of the licensor, for example the right to operate a casino), the licensor shall assess goods or services promised in the arrangement and shall identify each distinct performance obligation promised to the licensee in accordance with paragraphs 22–30 of AASB 15.

Identifying the customer

G17

Appendix A defines a customer for the purpose of this Standard. In the context of non-IP licences, the customer is the licensee who contracted with the licensor to be issued the rights associated with the licence.

Identifying the goods or services

G18

The good or service being transferred in a non-IP licence by a licensor would most commonly be either issuing rights over the licensor’s non-identified assets or issuing rights to the licensee to perform an activity (ie issuing the licence itself is the sole good or service). However, an entity shall also assess the arrangement to identify any other goods or services promised to the licensee.

G19

In accordance with paragraph 25, performance obligations do not include activities that a licensor must undertake to fulfil a contract unless those activities transfer a good or service additional to the licence issued to the licensee. For example:

(a)            a promise to the licensee that the right is restricted to the licensee is not a performance obligation. A promise in the licence terms that the licensor will not issue a similar right to another party (ie exclusivity to the licensee) is considered an attribute of the arrangement and does not transfer a good or service additional to the licence. Although the licensor maintaining exclusivity maintains the value of the licence, and has a greater value than a non-exclusive licence, it does not transfer an additional good or service. The licensor refraining from issuing another licence to a new licensee only confirms the licence meets the attributes promised at inception of the licence. Similarly, if a licensor carries out activities to ensure that no other party engages in the activities that the licensee has an exclusive right to, this does not provide a service to the licensee, but instead is an activity that confirms the licence meets the attributes promised at inception of the licence;

(b)            activities that a licensor is required to undertake in the context of a non-IP licence to benefit the general public or to confirm the terms of the licence are being met (for example ‘policing’ activities to ensure licensee is not carrying out illegal activities or customers of the licensee are of a legally allowable age) are not performance obligations. Such activities do not transfer additional goods or services to the licensee (even though the licensee could benefit from those activities); and

(c)            activities that a licensor performs to check that a licensee continues to meet the eligibility requirements of the arrangement are not performance obligations. The licensee controls whether they meet the eligibility requirements of the arrangement. Activities performed by the licensor to uphold the integrity of the licence merely confirm that the arrangement is not breached, and do not transfer goods or services to the licensee.

Licences distinct from other goods and services

G20

If the promise to issue a non-IP licence is not distinct from other promised goods or services in the arrangement in accordance with paragraphs 26–30, the licensor shall combine the promise to issue that licence with the other goods or services and account for the bundle of goods or services together as a single performance obligation.

G21

When determining whether the non-IP licence is distinct from other goods or services (in accordance with paragraphs 26–30), a licensor shall consider the benefits or desired outputs for which the licence was issued. For example, in the case of a commercial fishing licence where a quota of fish is specified in the agreement, the purpose of obtaining the licence is to obtain goods (ie the fish), and the licence is not separately identifiable from the fish, given:

(a)            the licensor is using the licence as an input to deliver the fish to the licensee, which is the output to the licensee; and

(b)            the licence and the promise to deliver the fish are highly interrelated – the licensor would not be able to fulfil its promise of delivering the fish independently of issuing the licence without undermining its policies and customary business practices (ie the fish can only be delivered when a fishing licence has been issued).

In these circumstances, the licence is not separately identifiable from other promises in the arrangement, in accordance with paragraphs 29(a) and (c) of AASB 15.

Recognition exemption: low-value licences (paragraphs Aus8.1–Aus8.3)

G22

This Standard permits a not-for-profit public sector licensor to apply paragraph Aus8.3 in accounting for low-value licences. A licensor shall assess the transaction price of a licence on an absolute basis when the licence is issued.

G23

Notwithstanding paragraph G22, the option allowed in paragraph Aus8.1 is not available to licences including variable consideration.

G24

Low-value licences qualify for the accounting treatment in paragraph Aus8.3 regardless of whether those licences are material in aggregate to the licensor. The assessment is not affected by the size, nature or circumstances of the licensor. Accordingly, different licensors would be expected to reach the same conclusions about whether a particular licence has a low-value transaction price.

G25

A licence does not qualify as a low-value licence if the nature of the licence is such that the licence is not typically of low value. For example, casino licences would not qualify as low-value licences because casino licences would typically not be of low value.

G26

Examples of low-value licences include driver licences, marriage licences and working with children permits.

Recognition exemption: short-term licences (paragraphs Aus8.1–Aus8.5)

G27

The Standard permits a not-for-profit public sector licensor to apply paragraph Aus8.3 in accounting for short-term licences. In determining the licence term, the licensor shall disregard any option to extend the licence, regardless of whether the licensee is reasonably certain to exercise that option.

Australian illustrative examples for not-for-profit entities

Identifying performance obligations (paragraphs F20–F27) | Allocating the transaction price to performance obligations (paragraphs F28–F32) | Accounting for upfront fees (paragraphs F5–F27)

These illustrative examples accompany, but are not part of, AASB 15. They illustrate aspects of the Australian guidance for not-for-profit entities in AASB 15, but are not intended to provide interpretative guidance.

IE1

The following examples portray hypothetical situations. They are intended to illustrate how a not-for-profit entity might apply some of the requirements of AASB 15 Revenue from Contracts with Customers to particular types of transactions, on the basis of the limited facts presented. Although some aspects of the examples might be present in actual fact patterns, all relevant facts and circumstances of a particular fact pattern would need to be evaluated when applying AASB 15.

Identifying performance obligations (paragraphs F20–F27)

IE2

Examples 1 and 2 illustrate the requirements of AASB 15 for identifying whether a transaction or agreement involves a performance obligation in a contract with a customer.

IE3

For a performance obligation to exist, there must be an enforceable agreement with sufficiently specific promises to transfer goods or services to or on behalf of the other party to enable assessment of whether the performance has occurred, ie whether the obligation has been satisfied. Further examples are provided in AASB 1058 of transactions or agreements where the performance obligation is not sufficiently specific.

Example 1—Enforceable agreement

Local Government A (the reporting entity) signed a Memorandum of Understanding (MOU) with a not-for-profit private sector entity. The MOU specifies that it is not legally binding on either of the parties and does not impose a refund obligation on the not-for-profit entity in the event it fails to perform under the terms of the agreement or refer to other enforceability mechanisms. Despite the statement that the MOU is not legally binding, the parties have indicated in their discussions their intention to rely upon it. The not-for-profit entity has commenced providing services under the MOU and has reported to Local Government A on its first two months’ work.

Given the intention of the parties to rely upon the MOU, and the actions of the not-for-profit entity in reliance on the MOU, the MOU is enforceable despite the statement that it is not legally binding and the absence of a refund obligation or other enforcement requirements.

 

Example 2—Research activities—Transfer of intellectual property

University A receives a cash grant from a donor, Road Safety Authority B, of $1.2 million to undertake research that aims to observe and model traffic flows and patterns through black-spot intersections and to develop proposals for improvements to the road system.

The terms of the grant are:

·        a period of three years;

·        the return of funds that are either unspent or not spent in accordance with the agreement;

·        annual progress reports and a final report are required;

·        publication of research results in conference presentations and/or scholarly journals; and

·        the transfer of the intellectual property (IP) rights arising from the research activity to the donor, Authority B.

University A concludes its arrangement with donor B is a contract with a customer as defined in AASB 15. This is on the basis that:

·        University A’s promise of specified research and transfer of the resulting IP is enforceable as the grant is refundable if the research is not undertaken;

·        University A identifies that its promise to transfer the IP created through the research to the donor is sufficiently specific to be a performance obligation. The university determines that the research services are required to develop the IP in order to fulfil the contract and therefore do not, of themselves, give rise to a transfer of goods or services to the donor; and

·        University A determines that the requirements for annual progress reports, a final report and publication of research results are an acquittal process that will assist it to measure its progress towards satisfaction of the performance obligation, rather than a separate performance obligation or obligations.

Accounting treatment

In accordance with AASB 15, University A allocates the cash grant to its identified performance obligation and recognises the financial asset (cash) and a contract liability of $1.2 million on initial recognition.

University A concludes that the performance obligation is satisfied over time as the university’s performance creates or enhances an asset (knowledge – the IP) that the donor controls as the asset is created or enhanced (AASB 15, paragraph 35(b)). Accordingly, the university recognises revenue over time as it satisfies the performance obligation. The university elects to measure its progress towards complete satisfaction of the performance obligation on the basis of an input method, such as labour hours expended.

 

Example 3—Research activities—Provision of licence to donor

Example 3A – Enforceable agreement, sufficiently specific performance obligation, licence granted to donor (right to access IP)

In this example, the facts of Example 2 apply, except that:

·        University A retains control of the IP arising from the research, instead of the IP transferring to the donor;

·        the IP is licensed permanently to donor B at the commencement of the agreement; and

·        the licence covers the research activities undertaken and the results that arise over the term of the agreement as the IP is developed.

University A concludes its arrangement with donor B is a contract with a customer as defined in AASB 15. This is on the basis that:

·        University A’s promise of specified research and granting of the licence is enforceable as the grant is refundable if the research is not undertaken;

·        University A identifies that its promise to grant the licence to the donor is sufficiently specific to be a performance obligation. The university determines that the research services are required to develop the IP in order to fulfil the contract and therefore do not, of themselves, give rise to a transfer of goods or services to the donor; and

·        University A determines that the requirements for annual progress reports and a final report and publication of research results are an acquittal process that will assist it to measure its progress towards satisfaction of the performance obligation.

Accounting treatment

In accordance with AASB 15, University A allocates the cash grant to its identified performance obligation (granting of the licence to the IP) and recognises the financial asset (cash) and a contract liability of $1.2 million on initial recognition.

University A concludes that the performance obligation is satisfied over time as the licence provides the donor with a right to access the entity’s IP as it exists throughout the licence period (paragraph B58):

·        the university’s activities significantly affect the IP to which the donor has rights;

·        the licence exposes the donor to any positive or negative effects of the university’s activities; and

·        the university’s activities do not result in the transfer of a good or service to the donor as those activities occur.

Accordingly, the university recognises revenue over time as it satisfies the performance obligation. The university elects to measure its progress towards complete satisfaction of the performance obligation on the basis of an input method, such as labour hours expended.

Example 3B – Enforceable agreement, sufficiently specific performance obligation, licence granted to donor (right to use IP)

In this example, the facts of Example 3A apply, except that:

·        the research aims to observe and model traffic flows and patterns along roads potentially affected by a future freeway development and to develop proposals for the freeway interchanges; and

·        the IP (as it then exists) is licensed permanently to donor B at the conclusion of the agreement.

University A concludes its arrangement with donor B is a contract with a customer as defined in AASB 15. This is on the basis that:

·        University A’s promise of specified research and granting of the licence is enforceable as the grant is refundable if the research is not undertaken; and

·        University A identifies that its promise to grant the licence to the donor is sufficiently specific to be a performance obligation. The university determines that the research services are required to develop the IP in order to fulfil the contract and therefore do not, of themselves, give rise to a transfer of goods or services to the donor.

Accounting treatment

In accordance with AASB 15, University A allocates the cash grant to its identified performance obligation (granting of the licence to the IP) and recognises the financial asset (cash) and a contract liability of $1.2 million on initial recognition.

University A concludes that the performance obligation is satisfied at a point in time (the end of the grant period) as the licence provides the donor only with a right to use the entity’s IP as it exists when the licence is granted (paragraph B61). That is, the licence provides the donor with a right to use the university’s IP as it exists at the end of the grant period. The licence does not provide a right to access the university’s IP as the criteria in paragraph B58 are not met.

Accordingly, the university recognises revenue at the conclusion of the agreement, when the licence is granted to the donor.

 

Example 4—Research activities—Transfer of research findings

Example 4A – Enforceable agreement, sufficiently specific performance obligation, research data only

Research Institute C receives a cash grant from a donor, Marine Sanctuaries Trust M, of $5.3 million to undertake research that aims to track whale migration along the eastern coast of Australia.

The terms of the grant are:

·        a period of three years;

·        the return of funds that are either unspent or not spent in accordance with the agreement;

·        publication of research data on a public website as it is obtained, so that any researchers can use the data;

·        the IP arising from the research is neither transferred to nor licensed to donor M;

·        annual progress reports and a final report are required;

·        Institute C may publish research results in conference presentations and/or scholarly journals, retaining the copyright to such results; and

·        the institute has an explicit right to payment for the research services completed to date if the agreement is terminated.

Institute C concludes that the arrangement is a contract with a customer as defined in AASB 15 on the basis that:

·        Institute C’s promise of specified research and contemporaneous publication of the research data is enforceable as the grant is refundable if the research is not undertaken;

·        the institute identifies its promise to undertake the research and contemporaneously publish the research data is sufficiently specific and represents a single performance obligation; and

·        the undertaking of the research and contemporaneous publication of the data will represent services provided to the donor, as it is a beneficiary of the research even though the research data is publicly available.

Accounting treatment

In accordance with AASB 15, Institute C allocates the cash grant to its identified performance obligation and recognises the financial asset (cash) and a contract liability of $5.3 million on initial recognition.

Institute C concludes that the performance obligation is satisfied over time as the donor simultaneously receives and consumes the benefits of the research services as they are performed (paragraph 35(a)). This is on the grounds that the research data is made public as it is collected.

Accordingly, the institute recognises revenue over time as it satisfies the performance obligation. The institute elects to measure its progress towards complete satisfaction of the performance obligation on the basis of research data published.

Example 4B – Enforceable agreement, sufficiently specific performance obligation, research data and assessment only

In this example, the facts of Example 4A apply, except that:

·        the grant requires Research Institute C to prepare interim and final reports analysing the tracking data obtained;

·        publication of the research data is required at the conclusion of the research, rather than contemporaneously;

·        the IP arising from the research is neither transferred to nor licensed to donor M; and

·        the institute is restricted from readily directing the tracking information and analysis for another use of the institute.

Institute C concludes that the arrangement is a contract with a customer as defined in AASB 15, on the same basis as set out in Example 4A.

Accounting treatment

In accordance with AASB 15, Institute C allocates the cash grant to its identified performance obligation and recognises the financial asset (cash) and a contract liability of $5.3 million on initial recognition.

Institute C concludes that the donor does not simultaneously receive and consume the benefits of the research services as they are performed, since the research data is not published until the conclusion of the research. Furthermore, the performance of the research activities results in the accumulation of knowledge, which is an asset (whether recognisable or unrecognisable) developed by the researcher but not immediately consumed. Therefore, paragraph 35(a) is not satisfied.

As the donor does not obtain the IP under the agreement, Institute C determines that its research does not create or enhance an asset that donor M controls as the asset is created or enhanced. Therefore, paragraph 35(b) is not satisfied.

Institute C notes that its research performance does not create an asset with an alternative use to the entity due to the restrictions in the agreement regarding directing the research to another use. Institute C also notes that it has an explicit, enforceable right to payment for performance completed. Therefore, paragraph 35(c) is satisfied.

Accordingly, Institute C concludes that the performance obligation is satisfied over time and recognises revenue over time as it satisfies the performance obligation. The institute elects to measure progress on the basis of the amount it would be entitled to receive for its performance to date, which corresponds with the value of the performance to the customer.

Example 4C – Enforceable agreement, sufficiently specific performance obligation, research data and assessment only

In this example, the facts of Example 4B apply, except that Institute C is able to utilise the research it performs for any other use of the institute. Institute C concludes that the arrangement is a contract with a customer as defined in AASB 15, on the same basis as set out in Example 4A.

Accounting treatment

In accordance with AASB 15, Institute C allocates the cash grant to its identified performance obligation and recognises the financial asset (cash) and a contract liability of $5.3 million on initial recognition.

Institute C concludes that the donor does not simultaneously receive and consume the benefits of the research services as they are performed, on the same basis as set out in Example 4B. Therefore, paragraph 35(a) is not satisfied.

Institute C determines that its research does not create or enhance an asset that donor M controls as the asset is created or enhanced, on the same basis as set out in Example 4B. Therefore, paragraph 35(b) is not satisfied.

Moreover, the institute notes that it is able to utilise the research it performs for any other use it determines. This is on the grounds that the institute has no contractual or practical limitation on its use of the research, including having the ability to sell the research to another customer. Therefore, the institute’s performance does create an asset with an alternative use to the entity, and paragraph 35(c) is not satisfied.

Accordingly, Institute C concludes that the performance obligation is satisfied at a point in time (the end of the grant period) and recognises revenue at the conclusion of the agreement, when it satisfies the performance obligation.

Example 4D – Enforceable agreement, sufficiently specific performance obligation, research data only

In this example, the facts of Example 4C apply, except that, rather than requiring publication of research data contemporaneously or at the conclusion of the research, the grant agreement refers to the institute’s policy that requires the de-identified research findings (including data) to be made available to the donor and authorised third parties periodically (eg at least annually at the end of each year).[a]

Institute C concludes that the arrangement is a contract with a customer as defined in AASB 15 on the basis that:

·        Institute C’s promise of specified research and making available the de-identified research findings is enforceable as the grant is refundable if the research is not undertaken; and

·        the institute identifies its promises to make available de-identified research findings periodically as sufficiently specific promises as they are separate performance obligations each satisfied at a point in time, representing discrete transfers of the research findings to the donor or third-party beneficiaries. The promises are sufficiently specific on the basis that the policies attached to the research grant specify the nature of the material (de-identified research findings (including data)) to be made available and a timeframe for that to occur (ie making the research findings available periodically, at least at the end of each of the three years). The terms of the grant require the institute to make the research findings available to the donor and third parties as set out in its policy, regardless of whether the donor or third parties actually access the findings.

Accounting treatment

In accordance with AASB 15, Institute C allocates the cash grant to its identified performance obligations and recognises the financial asset (cash) and a contract liability of $5.3 million on initial recognition.

Institute C concludes that for each of the performance obligations, the donor does not simultaneously receive and consume the benefits of the research services as they are performed. This is on the grounds that performance of the research activities results in the accumulation of knowledge, an asset (whether recognisable or unrecognisable) that is not immediately consumed. Therefore, paragraph 35(a) is not satisfied.

The donor does not obtain the IP under the agreement, nor does the donor control the knowledge accumulated as research activities are carried out. As a result, Institute C determines that its research does not create or enhance an asset that the donor M controls as the asset is created or enhanced. Therefore, paragraph 35(b) is not satisfied.

Moreover, the institute notes that it is able to utilise the research it performs for any other use it determines. This is on the grounds that the institute has no contractual or practical limitation on its use of the research, including having the ability to sell the research to another party. Therefore, the institute’s performance does create an asset with an alternative use to the entity, and paragraph 35(c) is not satisfied.

Accordingly, Institute C concludes that each performance obligation is satisfied at a point in time (eg the end of each year) when the research findings to date are made available, whether or not the donor or third parties access the findings, and recognises the related revenue at those points in time (eg the end of each year).[a]

  • Alternatively, where the grant agreement does not explicitly refer to the institute’s policy, provided the donor is aware of this policy, the institute’s past practice of making de-identified research findings available at least annually to donors and authorised third parties in accordance with its policy may create a valid expectation that the research findings will be made available. In this case, the implicit promises to make available de-identified research findings periodically would be treated as part of the grant terms. [The grant agreement could instead refer explicitly to the making available of research findings, so that reference to a policy of the institute would not be necessary.]

 

Example 5—Research activities—No contract with a customer

Example 5A – Enforceable agreement, performance obligations not sufficiently specific

University G receives a cash grant from a donor, Medical Research Trust Z, of $2 million to undertake research that aims to identify and validate biomarkers to distinguish malignant cancers from benign tumours.

The terms of the grant are:

·        a period of two years;

·        the return of funds that are either unspent or not spent in accordance with the agreement;

·        semi-annual budget reports that detail how the funds have been spent to date; and

·        the research results are publicised, when appropriate, in conference presentations and/or published in scholarly journals.

University G notes that the arrangement is enforceable as the grant is refundable if the research is not undertaken. However, University G concludes its arrangement with donor Z is not a contract with a customer as defined in AASB 15. This is on the basis that:

·        publicising the research results when appropriate is not sufficiently specific to enable University A to identify when it satisfies its obligations because there is no requirement to produce a specified number of publications or deliver a specified number of presentations; and

·        the budget reports merely provide the grantor an indication of the University’s spending of funds and do not represent a transfer of a benefit to the grantor.

Accordingly, the university concludes that the arrangement is not within the scope of AASB 15. Given that the university acquired cash (the grant funds) for consideration that is significantly less than fair value (there are no performance obligations to recognise) principally to enable it to further its objectives (research), University G concludes that AASB 1058 Income of Not-for-Profit Entities is applicable.

Accounting treatment

University G recognises a financial asset of $2 million for the cash grant received and recognises any related amounts arising under other Australian Accounting Standards in accordance with AASB 1058. Any excess of the financial asset over the related amounts would be recognised as income.

Example 5B – Enforceable agreement, performance obligations not sufficiently specific, individual researcher controls grant funds

In this example, the facts of Example 5A apply, except that:

·        University G receives the grant funds to administer on behalf of a researcher named in the grant;

·        the named researcher may direct the use of the funds in accordance with the grant agreement; and

·        the funding arrangement is tied to the researcher, so that if the researcher moves from University G to another research institution, any unspent grant funds held by the university will be transferred to the other research institution.

University G concludes that the arrangement is not a contract with a customer as defined in AASB 15, on the same basis as set out in Example 5A.

University G notes that it merely administers the grant funds on behalf of the researcher. Accordingly, the university considers the arrangement under the requirements of AASB 9 Financial Instruments, noting it:

·        receives cash that it administers in accordance with the grant agreement (to which it is a party);

·        may invest the funds it holds as it considers appropriate, benefiting from any interest received and obliged to reimburse any losses incurred; and

·        agrees to expend those funds at the direction of the researcher.

Accounting treatment

University G recognises a financial asset of $2 million for the funds received, in accordance with paragraph 3.1.1 of AASB 9. The university then considers whether it has transferred the financial asset to the researcher, but notes that because it may invest the funds as it considers appropriate, the university retains substantially all the risks and rewards of ownership of the funds. Accordingly, the university continues to recognise the grant funds as a financial asset and recognises an equal amount as a financial liability to expend the grant funds at the researcher’s direction, as required by paragraph 3.2.15 of AASB 9.

a

Alternatively, where the grant agreement does not explicitly refer to the institute’s policy, provided the donor is aware of this policy, the institute’s past practice of making de-identified research findings available at least annually to donors and authorised third parties in accordance with its policy may create a valid expectation that the research findings will be made available. In this case, the implicit promises to make available de-identified research findings periodically would be treated as part of the grant terms. [The grant agreement could instead refer explicitly to the making available of research findings, so that reference to a policy of the institute would not be necessary.]

Allocating the transaction price to performance obligations (paragraphs F28–F32)

IE4

Examples 6 and 7 illustrate the requirements of AASB 15 for accounting for the transaction or agreement, including assessing whether the transaction includes an element not related to performance obligations (eg a donation).

Example 6—Performance obligation, transfer of goods without donation element

Entity A (a not-for-profit entity) sells chocolates in a fundraising drive for a greater margin than a for-profit entity would typically generate by selling chocolates. In addition, buyers of the chocolates are often motivated by the not-for-profit entity’s benevolent aims. The customer is entitled to a full refund of the purchase price if the chocolates were ordered and paid for in advance and either the delivered chocolates were spoiled or Entity A is unable to deliver the chocolates.

Entity A determines there is a contract with a customer accounted for under AASB 15, as there is:

·        an enforceable contract due to the return obligation; and

·        a sufficiently specific performance obligation requiring the transfer of the chocolates to the customer, which is satisfied at the time of delivery.

Entity A determines that the presumption in paragraph F28 cannot be rebutted because the transaction price is not partially refundable.

Accounting treatment

Accordingly, the entire consideration received, including the proceeds from the additional profit margin, forms part of the transaction price that is allocated to the performance obligation. There is no element unrelated to the transfer of the chocolates that would require separate accounting.

 

Example 7—Performance obligation, transfer of goods without donation element

Entity B holds an annual fundraising dinner in its local community. The ticket price is $600 per head, and is partially refundable if the dinner is cancelled, in which case the customer will receive a refund of $300. Based on the menu, the retail price of the dinner at a local restaurant is $200 per ticket. Hosting the dinner also provides patrons (customers) with the benefit of socialising with a wide range of community members (including networking) and the amount of consideration to which Entity B expects to be entitled in exchange for transferring the promised goods or services (the dinner and networking) to the customer is $250.

Entity B determines there is a contract with a customer to be accounted for under AASB 15, as there is:

·        an enforceable contract due to the return obligation; and

·        a sufficiently specific performance obligation requiring the provision of the dinner and networki9ng to the customer, which would be satisfied at the point in time when provided.

Entity B determines that the presumption in paragraph F28 is rebutted as there is a partial refund in the event of non-performance. The element not related to the performance obligation is considered material

Accounting treatment

For each ticket sold, Entity B recognises:

·        a contract liability of $250, in accordance with AASB 15, which represents the transaction price of the dinner and networking to be provided to the ticketholder. Entity B would recognise this amount as revenue when it provides the dinner event; and

·        income of $350, in accordance with AASB 1058 – the residual of $350 is a result of a transaction where the consideration provided by the entity ($250) is significantly less than the fair value of the asset (cash of $600) principally to enable Entity B to further its objectives and therefore AASB 1058 applies, with immediate recognition of income.

A refund obligation is recognised only to the extent that the entity does not expect to retain the refundable amount. Entity B therefore does not recognise the refund obligation of $300 unless the dinner is cancelled or is expected to be cancelled. In that case, and subsequent to the initial accounting above, Entity B would then recognise in respect of each ticket:

·        the reversal of the contract liability of $250 (debit), as settlement is no longer expected;

·        a reduction in cash of $300 (credit), being the refund to the ticket holder; and

·        the difference of $50 (debit) is either an expense or a reduction of donation income previously recognised.

This results in a net donation of $300 per ticket, reflecting the net cash received for each ticket after the refund has been made.

Accounting for upfront fees (paragraphs F5–F27)

IE4A

Example 7A illustrates application of the requirements of AASB 15 to transactions where a not-for-profit entity charges upfront fees to customers or members as part of the goods and services offered. The following are examples of upfront fees:

(a)                joining fees at clubs and membership bodies;

(b)                enrolment fees at schools; and

(c)                other establishment or set-up fees where the fee is paid at or near contract inception and the customer can renew the contract each year without paying an additional fee.

Where the goods or services to which the upfront fee relates are in the scope of AASB 15, the recognition of the upfront fee as revenue depends on whether the payment of the fee relates to a transfer of distinct goods or services to the customer that meets the definition of a performance obligation. In many cases, even though a non-refundable upfront fee relates to the activity that an entity is required to undertake to fulfil the contract, that activity may be an administrative task that does not necessarily result in the transfer of a promised good or service to the customer.

 

Example 7A—Upfront fee charged by an organisation

An organisation offers enrolment to prospective clients for the services it provides. Upon accepting an offer of enrolment, the prospective client must pay an upfront fee (sometimes referred to as an ‘acceptance fee’, ‘entry fee’ or ‘enrolment fee’). The enrolment form sets out the following terms and conditions relevant to the fee:

·        upon payment of the fee, future service is guaranteed for the client to commence in the agreed-upon year and on an ongoing basis;

·        the fee is non-refundable and non-transferable; and

·        the fee is not offset against any future fees that are charged on an ongoing basis for continued access to the services.

The analysis below sets out the process followed by not-for-profit entities in determining the accounting treatment for upfront fees charged. The process does not specifically discuss any particular fee and is applied in the context of the relevant facts and circumstances of an entity’s upfront fees. Note: the term customer is used in the analysis to cover all counterparties to an agreement, for example members or students.

Analysis

Is the contract within the scope of AASB 15 Revenue from Contracts with Customers?

The entity first considers whether the agreement with the customer is within the scope of AASB 15, by referring to AASB 15 paragraphs 9–21 and F5–F19 to determine whether there is a contract with a customer:

·        Is there a customer who has promised consideration in exchange for goods or services from the entity and is the promise to transfer goods or services sufficiently specific? (AASB 15, paragraphs 9, Aus9.1 and F5–F7)

·        Is there a written, oral or implied agreement, such as an application form or other document? (AASB 15, paragraphs 10 and F8–F9)

·        Does the agreement create enforceable rights and obligations for the parties? For example, could the customer either enforce the agreement or obtain other remedy under Australian law if the promised service was not delivered? (AASB 15, paragraphs 10 and F10–F18)

In many cases where there will be an ongoing relationship with the customer following payment of the upfront fee, such as annual fees to access a service, revenue would be recognised in accordance with AASB 15. If multiple agreements are in place, for example an agreement for a joining fee and a separate agreement for the annual membership fee, then the guidance in paragraph 17 of AASB 15 should be considered in relation to combining the agreements for accounting purposes.

What are the performance obligations in the contract, and are the activities associated with the non-refundable upfront fee one of these performance obligations?

The entity considers the guidance on:

·        accounting for non-refundable fees in AASB 15, paragraphs B48–B51; and

·        identifying performance obligations in AASB 15, paragraphs 22–30 and F20–F27;

to determine whether the upfront fee relates to the transfer of a good or service separate to the provision of services in the future.

In performing this analysis, the entity notes that performance obligations do not include activities that an entity must undertake to fulfil a contract (eg setting up a customer on the system, printing membership cards and similar) unless those activities transfer a good or service to the customer (AASB 15, paragraph 25). The non-refundable fee might cover internal administrative activities that enable the entity to provide future services to the customer. However, these activities do not transfer a promised good or service to the customer separate from the provision of future services and therefore do not satisfy a separate performance obligation (AASB 15, paragraph B51). If this is the case, the entity concludes that the non-refundable upfront fee – to the extent it relates to the internal administrative services – does not represent a payment for a separate performance obligation but is in substance an advance payment for future services.

In other circumstances, some or all of the upfront fee may relate to a separate performance obligation or obligations, whether satisfied at or near contract inception or otherwise.

How is the revenue for the upfront fee recognised?

Where the activity does not result in a transfer of a good or service to the customer that satisfies a separate performance obligation and the upfront fee is an advance payment for performance obligations to be satisfied in the future, the upfront fee is recognised as revenue as these future services are provided, that is, over the period in which the performance obligation is satisfied. If the entity has charged the non-refundable fee in part as compensation for costs incurred in setting up a contract (or other administrative tasks) and those setup activities are not a separate performance obligation, they should be disregarded when measuring progress towards completion of the services (AASB 15, paragraph B51). The revenue recognition period will extend beyond the initial contractual period if the entity grants the customer the option to renew the contract and that option provides the customer with a material right (eg no requirement to pay a further joining fee on renewal) (AASB 15, paragraphs B40 and B49). Annual fees charged to access the services will be recognised as revenue over the period that the services are provided.

In the circumstances where some or all of the upfront fee relates to a separate performance obligation or obligations, the relevant portion of the upfront fee is recognised as revenue when the separate performance obligations are satisfied.

Accounting treatment

The organisation applies AASB 15 paragraphs 9–21 and F5–F19 and concludes that the agreement is within the scope of AASB 15, as:

·        there is a customer – the client – who has promised consideration in exchange for future services (an ordinary activity of the organisation) to be provided to a specified recipient (AASB 15, paragraphs 6 and F6–F7); and

·        a contract exists, as there is a written agreement (AASB 15, paragraphs 10 and F8–F9) that creates enforceable rights and obligations for the client to receive services in the agreed-upon years. Despite the fee being non-refundable, the client could either enforce the agreement or obtain remedy under Australian law if the organisation did not provide services in the agreed-upon years (AASB 15, paragraphs 10 and F10–F18).

The organisation considers the guidance on accounting for non-refundable fees in AASB 15 paragraphs B48–B51 and refers to paragraphs 22–30 and F20–F27 to assess whether the upfront fee relates to the transfer of a good or service separate to the provision of services in the future.

The organisation concludes that the non-refundable upfront fee does not relate to an activity that represents a separate performance obligation (AASB 15, paragraph 25), and therefore the fee is included in the consideration for the performance obligation(s) in the agreement (to provide future services). The upfront fee is treated as an advance payment for future services and is recognised as revenue over the period of the ongoing services (AASB 15, paragraphs 30 and B49).

Australian illustrative examples for not-for-profit public sector licensors

Satisfaction of performance obligations (paragraphs 31–38)

These illustrative examples accompany, but are not part of, AASB 15. They illustrate aspects of the Australian guidance for not-for-profit public sector licensors in AASB 15, but are not intended to provide interpretative guidance.

These examples illustrating aspects of the Australian guidance for not-for-profit public sector licensors in AASB 15 complement, and have the same status, as the Illustrative Examples accompanying IFRS 15 Revenue from Contracts with Customers, which are available on the AASB website to website users in Australia.

These examples are additional to the illustrative examples accompanying AASB 15 that were added as part of AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities. Therefore the numbering of these paragraphs starts at IE5 and the numbering of the examples starts at Example 8.

IE5

The following examples portray hypothetical situations. They are intended to illustrate how a not-for-profit public sector licensor might apply some of the requirements of AASB 15 Revenue from Contracts with Customers to non-IP licences that they issue, on the basis of the limited facts presented. Although some aspects of the examples might be present in actual fact patterns, all relevant facts and circumstances of a particular fact pattern would need to be evaluated when applying AASB 15. The evaluations in each example are not intended to represent the only manner in which AASB 15 could be applied.

Satisfaction of performance obligations (paragraphs 31–38)

IE6

Example 8 illustrates a not-for-profit public sector licensor recognising revenue when (or as) the licensor satisfies the performance obligation of transferring the promised licence to the licensee. A licence is transferred when (or as) the licensee obtains control of that licence. To determine when a licensee obtains control of the promised rights associated with the licence and the licensor satisfies its performance obligation, the licensor shall consider the requirements for control in AASB 15 paragraphs 31–34 regarding control by the licensee (the customer).

IE7

The licensor shall determine at the inception of each licensing arrangement whether the performance obligation from issuing the licence is recognised over time (in accordance with AASB 15 paragraphs 35–37) or at a point in time (in accordance with AASB 15 paragraph 38).

Example 8—Performance obligations, non-IP licence

Example 8A – Exclusivity rights

Public Sector Authority A (Licensor) issued Casino Operator B (Licensee) a licence to operate a casino in geographical location C for $100 million.

The terms of the arrangement are:

·        a period of ten years;

·        payment for the arrangement is not refundable and is due when the licence is issued;

·        the arrangement contains an exclusivity clause, whereby no other casinos may operate within geographical location C during the licence period. Licensor is responsible for protecting the exclusivity of the arrangement and will be responsible for the payment of damages to Licensee if exclusivity is breached;

·        as part of the arrangement, Licensor is responsible for performing a number of regulatory oversight and monitoring activities prior to issuing the licence and ongoing throughout the licensing period to ensure Licensee and operation of the casino remain free from criminal influence or exploitation, and gaming in the casino is conducted honestly; and

·        the cost for issuing the casino licence (including surveying the proposed gaming premises and the upfront and ongoing regulatory activities) is expected to be $100,000.

Applying the accounting framework for licences issued by not-for-profit public sector licensors

Is the arrangement a licence or a tax?

Licensor applies paragraph G3 and concludes its arrangement with Licensee is not a tax, on the basis that the majority of the indicators support a licence classification:

·        it is a discretionary arrangement entered into by each of the parties;

·        its primary purpose is not generating income for the public sector, but ensuring that the participation of the general public in gaming activities is controlled, provided in a safe environment and protected from criminal influence and exploitation. The low costs of $100,000 in comparison to the licence payment of $100 million may be indicative of a tax element (see below);

·        it contains an obligation for Licensor to issue a casino licence, and creates enforceable rights for Licensee to conduct gaming activities;

·        it gives Licensee specific permission to provide gaming activities which would otherwise be unlawful;

·        there is no underlying asset of Licensor that is transferred to Licensee.

Licensor applies paragraphs G4–G6 and concludes there is no tax element that needs to be separated. Although the arrangement has a low cost in relation to the consideration received, which might be indicative of a tax element, the transaction price is not refundable, and there is no other evidence indicating similar activities operating through different structures (such as online gaming) are subject to a tax. Accordingly, the criteria necessary to rebut the presumption for Licensor to allocate the transaction price of $100 million wholly to the licence are not satisfied.

Is it a low-value or short-term licence?

Applying paragraphs Aus8.1 and G22–G27, Licensor concludes that its arrangement with Licensee is not a low-value or short-term licence because the transaction price of the licence is $100 million and the term of the licence is 10 years.

Is it an intellectual property (IP) licence?

Applying paragraph G13, Licensor concludes its arrangement with Licensee is a non-IP licence as the arrangement does not involve rights over IP of Licensor.

Is the non-IP licence a lease or does it contain a lease?

Applying paragraphs Aus5.2 and G14(a), Licensor concludes its arrangement with Licensee gives Licensee a right to perform an activity (ie operate a casino) rather than conveying a right over an identified asset of the Licensor. Therefore the arrangement is not a lease and does not contain a lease.

Identifying the performance obligation

Who is the customer?

Applying paragraph G16, Licensee (Casino Operator B) is identified as the customer. Licensee has entered into an arrangement with Licensor to obtain goods or services that are an output of Licensor’s ordinary activities in exchange for consideration.

What are the goods and services promised in the arrangement?

Applying paragraphs G18–G21, Licensor concludes the only goods and services transferred to Licensee (the customer) is the licence itself, being the ‘right to perform’ gambling activities.

Licensor observes that the following promises/activities are not performance obligations as they do not transfer additional goods or services to Licensee, beyond the licence itself, but instead either confirm the attributes promised at inception of the licence or confirm that the terms of the licence have been met:

·        refraining from issuing new casino licences in geographical location C as the licence is exclusive (ie an exclusive licence is issued and continues throughout the licence period); and

·        performing regulatory activities to monitor that Licensee continues to meet the eligibility criteria (including that the gaming offered is honest and free from criminal influence) during the period of the licence. The Licensee must meet the eligibility criteria to be issued the licence and controls whether the criteria continue to be met, so no additional goods or services are provided by the licensor.

Licensor does not identify any remaining promises to transfer a good or service to Licensee in the arrangement that are distinct from the licence.

Licensor concludes there is a single distinct performance obligation to issue the licence.

Example 8B – Distinct goods or services

In this example, the facts of Example 8A apply, except that, in addition to issuing the licence, Licensor will perform maintenance of Licensee’s gaming machines throughout the licence term to ensure that the gaming machines are in working order, have not been tampered with and are not in need of repair. If such services were not provided by Licensor, it is expected that Licensee would engage a third party to carry out the maintenance services to provide assurance to Licensee’s patrons that the machines are functioning as they should be. In addition:

·        Licensor observes that, based on market conditions, a customer in the market for such maintenance services would be willing to pay $5 million; and

·        the upfront payment of $100 million includes the maintenance services.

Applying the accounting framework for licences issued by not-for-profit public sector licensors

Licensor concludes on the same basis as Example 8A that its arrangement to issue a non-IP licence to Licensee is not a tax, is not a low-value or short-term licence, is not an IP licence and is not a lease or does not contain a lease.

Identifying the performance obligation

Licensor concludes on the same basis as Example 8A that Licensee is the customer, and identifies the issue of the licence (the right to perform) as a performance obligation.

Applying paragraphs 22 and G15–G20, Licensor concludes there are two distinct performance obligations to:

·        issue the license; and

·        provide a series of maintenance services.

The promise to perform maintenance services on the gaming machines transfers a series of services that are substantially the same and have the same pattern of transfer to Licensee and in accordance with paragraph 27 this service is distinct from granting the licence to operate a casino, as:

(a)    Licensee can benefit from the service either on its own or together with other resources that are readily available to Licensee (paragraph 28) – if Licensor were not providing this service to Licensee, Licensee would be reasonably expected to obtain such services from a third party to ensure machines are operating at capacity to generate maximum revenue; and

(b)    Licensor’s promise to transfer the good or service to Licensee is separately identifiable from other promises in the arrangement (paragraph 29) as:

(i)     the maintenance services are not integral to the issue of the casino licence;

(ii)     the maintenance services do not modify the rights provided by the licence; and

(iii)     the nature of Licensor’s promise is to transfer the maintenance services separately to the issue of the casino licence.

Licensor does not identify any remaining promises to transfer a good or service to Licensee in the arrangement that are distinct from the license and the maintenance services.

Compilation details

Accounting Standard AASB 15 Revenue from Contracts with Customers (as amended)

Compilation details are not part of AASB 15.

This compiled Standard applies to annual periods beginning on or after 1 July 2022 but before 1 January 2023. It takes into account amendments up to and including 3 May 2022 and was prepared on 15 September 2022 by the staff of the Australian Accounting Standards Board (AASB).

This compilation is not a separate Accounting Standard made by the AASB. Instead, it is a representation of AASB 15 (December 2014) as amended by other Accounting Standards, which are listed in the table below.

Table of Standards

Table of amendments to Standard

Table of amendments to guidance