Setting Windows PowerShell environment variables

An entity that manufactures consumer goods enters into a one-year contract to sell goods to a customer that is a large global chain of retail stores. The contract also requires the entity to make a non-refundable payment of CU1.5 million to the customer at the inception of the contract. The CU1.5 million payment will compensate the customer for the changes it needs to make to its shelving to accommodate the entity’s products. In assessing the requirements in paragraph 62(c) of IFRS 15, the entity determines that the payment terms were structured primarily for reasons other than the provision of finance to the entity.

Costs to fulfil a contract

If the customer purchases more than 1 million products in a calendar year, the contract indicates that the price per unit is retrospectively reduced to CU125 per product. Examples 38⁠–⁠40 illustrate the requirements in paragraphs 105⁠–⁠109 of IFRS 15 on the presentation of contract balances. In addition to the initial costs to set up the technology platform, the entity also assigns two employees who are primarily responsible for providing the service to the customer. Although the costs for these two employees are incurred as part of providing the service to the customer, the entity concludes that the costs do not generate or enhance resources of the entity (see paragraph 95(b) of IFRS 15). Therefore, the costs do not meet the criteria in paragraph 95 of IFRS 15 and cannot be recognised as an asset using IFRS 15.

• An entity sells consumer products and has a reliable history of the returns it can expect from those sales.
• An entity enters into a contract with a customer that will result in the delivery of multiple units of a highly complex, specialised device.
• The customer pays a non-refundable deposit of CU50,000 at inception of the contract and enters into a long-term financing agreement with the entity for the remaining 95 per cent of the promised consideration.
• An entity contracts with a customer to sell a piece of equipment and installation services.
• That is, the entity would be able to fulfil its promise to transfer the equipment even if the customer did not purchase any consumables and would be able to fulfil its promise to provide the consumables, even if the customer acquired the equipment separately.

Example 28—Determining the discount rate

Consequently, in accordance with paragraph B66(b) of IFRS 15, the entity accounts for the transaction as a financing arrangement, because the exercise price is more than the original selling price. In accordance with paragraph B68 of IFRS 15, the entity does not derecognise the asset and instead recognises the cash received as a financial liability. The entity also recognises interest expense for the difference between the exercise price (CU1.1 million) and the cash received (CU1 million), which increases the liability. The entity applies paragraphs 31⁠–⁠38 of IFRS 15 to determine whether the manufacturing service is a performance obligation satisfied at a point in time or over time. An entity enters into a contract with a customer to licence (for a period of three years) intellectual property related to the design and production processes for a good.

The indicators in paragraphs B37(b)⁠–⁠(c) of IFRS 15 also provide relevant evidence that the entity controls each specified right (ticket) before it is transferred to the customer. The entity has inventory risk with respect to the ticket because the entity committed itself to obtain the ticket from the airline before obtaining a contract with a customer to purchase the ticket. This is because the entity is obliged to pay the airline for that right regardless of whether it is able to obtain a customer to resell the ticket to or whether it can obtain a favourable price for the ticket. The entity also establishes the price that the customer will pay for the specified ticket. The entity observes that it does not commit itself to obtain the services from the service provider before obtaining the contract with the customer.

The entity concludes that, with each ticket that it commits itself to purchase from the airline, it obtains control of a right to fly on a specified flight (in the form of a ticket) that the entity then transfers to one of its customers (see paragraph B35A(a)). Consequently, the entity determines that the specified good or service to be provided to its customer is that right (to a seat on a specific flight) that the entity controls. The entity is primarily responsible for fulfilling the promise to provide office maintenance services. An entity enters into a contract with a customer to provide office maintenance services. variable consideration The entity and the customer define and agree on the scope of the services and negotiate the price.

• In either case, because the effort required to develop an accurate estimate can be significant, entities should be careful to correctly determine whether a contract contains variable consideration or an optional purchase.
• Because the criteria in paragraph 9 of IFRS 15 are not met, the entity applies paragraphs 15⁠–⁠16 of IFRS 15 to determine the accounting for the non-refundable deposit of CU50,000.
• For instance, consider a pharmaceutical company that sells a drug to a government healthcare program.
• The entity determines that its promises to transfer the equipment and to provide consumables over a three‑year period are each separately identifiable in accordance with paragraph 27(b) of IFRS 15.
• In accounting for the sale of the additional 30 products, the entity determines that the negotiated price of CU80 per product does not reflect the stand-alone selling price of the additional products.

An option to purchase additional goods or services is only a performance obligation if it gives the customer a material right that would not otherwise be available without entering into a contract. The right is material if it gives the customer a discount that is incremental to other discounts available to the customer. If the right is material, the transaction price must be allocated to the option based on its standalone selling price (SSP) or an estimate of the SSP if it is unobservable. If an option is exercised, the exercise is accounted for as either an adjustment to the transaction price or a contract modification.

The entity applies paragraph 85 of IFRS 15 to determine whether the variable consideration should be allocated entirely to the performance obligation to transfer the franchise licence. The entity concludes that the variable consideration (ie the sales-based royalty) should be allocated entirely to the franchise licence because the variable consideration relates entirely to the entity’s promise to grant the franchise licence. In addition, the entity observes that allocating CU150,000 to the equipment and the sales-based royalty to the franchise licence would be consistent with an allocation based on the entity’s relative stand-alone selling prices in similar contracts. Consequently, the entity concludes that the variable consideration (ie the sales-based royalty) should be allocated entirely to the performance obligation to grant the franchise licence.

An entity sells a product to a customer for $121,000 that is payable 24 months from the delivery date. Here the entity must determine if the implicit interest rate is comparable to the rate in a separate financing arrangement and concludes that it is. For contracts where the entity expects to deliver the goods or services in a time period of less than one year, entities may elect a practical expedient to disregard the consideration of the time value of money.

In situations where the entity is uncertain as to whether the customer will make use of such consideration, the entity must estimate an amount and record a liability based on the estimate. In revenue recognition, determining whether consideration is fixed or variable is crucial for accurate financial reporting. Under ASC 606, the transaction price reflects an entity’s expectation of the consideration it will receive from a customer. The entity concludes that the customer would reasonably expect that the entity will undertake activities that will significantly affect the intellectual property (ie the team name and logo) to which the customer has rights. This is on the basis of the entity’s customary business practice to undertake activities that support and maintain the value of the name and logo such as continuing to play and providing a competitive team. The entity determines that the ability of the customer to obtain benefit from the name and logo is substantially derived from, or dependent upon, the expected activities of the entity.

Consequently, at contract inception, the entity allocates to the option to renew at the end of Year 1 CU22,000 of the consideration received to date cash of CU100,000 – revenue to be recognised in Year 1 of CU78,000 (CU780 × 100). The entity expects 90 customers to renew at the end of Year 1 (90 per cent of contracts sold) and 81 customers to renew at the end of Year 2 (90 per cent of the 90 customers that renewed at the end of Year 1 will also renew at the end of Year 2, that is 81 per cent of contracts sold). Thus, the entity concludes that it is an agent in relation to the third party’s database service. In contrast, the entity concludes that it is the principal in relation to the recruitment services because the entity performs those services itself and no other party is involved in providing those services to the customer. The entity does not have discretion in setting the price for the database access with the customer because the database provider sets that price. The entity does not take inventory risk at any time before or after the goods are transferred to the customer.