Inventory $103 Anne Worstenly: IFRS 15 is the New Revenue standard issued by IASB to replace the IAS 18 and IAS 11. IFRS 15 will change the way many retailers and wholesalers account for their contracts. the piece allocated to S&H) is only recognized once you've fulfilled your obligation to ship the goods. Dr. Mike, Jason M.: This is the price (excluding shipping and handling fees) a seller has provided at which the same item, or one that is nearly identical to it, is being offered for sale or has been offered for sale in the recent past. Mike Walworth, CPA IFRS 15 does not include the same specific guidance; however, IFRS reporters should consider the application of materiality concepts when identifying performance obligations. Mike Walworth, CPA: %%EOF ??? h�bbd``b`� ���A��%bI�X@�oWD���s2���r� f ��$����.�x�g@B�*�S ��R$�> -}&FfQ�,#����-_ e-c Terms and Conditions | Privacy Policy, Impact of underwriter lock-ups fair value of equity securities. You recognize a portion of the revenue on the goods when control passes to the customer. Reporting revenue under IFRS 15 is now one of the ordinary activities of companies in the 100+ countries that use IFRS Standards. See my response to Anne above for a bit more on IFRS. 12 of the 13 IASB members present agreed with these decisions. Early adoption: For public business entities and certain not-for-profit entities the effective date for early adoption is the fiscal years beginning after Dec. 15… It just state there is no policy choice, but not clear how it should be applied ? Do you look at the cost, or lack thereof, related to shipping and handling when you purchase goods online? For all other entites the effective date for interim periods is the fiscal years beginning after Dec. 15, 2019. In the May 2018 edition of Accounting Alert we discussed the five step model for revenue recognition introduced by IFRS 15 Revenue from Contracts with Customers (“IFRS 15”):. Of course, I'm sure some companies argue that S&H is immaterial, but that is a judgment call (and one you have to take up with your auditors). Nov 06, 2018 at 05:39 PM, Clear and easy to understand. As a result, an entity that accounts for these costs as a fulfillment activity must accrue costs associated with shipping and handling activities when control of the related goods has transferred to the customer. IFRS 15 states also that it is possible to recognise revenue on a straight-line basis if the entity’s efforts or inputs are spread evenly throughout the performance period. The answer is simple – free shipping! The reasons for the IASB’s decisions are explained in paragraphs BC7- In our case, the goods were sold “FOB Shipping Point,” meaning the customer takes control of the goods prior to shipment. Under US GAAP, if these charges are separately stated on the contract, then they must be reported as revenue (assuming payment is reasonably assured). However, four ASUs later, the standards are moving further apart. Other retailers are starting to follow suit, offering free shipping on purchases, because Amazon is eating into their sales. This is just one in a series of blog posts on the new revenue standard that we have summarized here, along with other resources to help you with implementation. Business Combinations Business Combinations — SEC Reporting Considerations Carve-Out Transactions Comparing IFRS Standards and U.S. GAAP Consolidation — Identifying a Controlling ... Q&A IFRS 15: B34-1 — Presentation of Shipping and Handling Costs Billed to Customers ... Q&A IFRS 15: B34-1 — Presentation of Shipping and Handling … IFRS 15 will change the way many transport and logistics companies account for their contracts. The presentation of fulfillment costs related to S&H is not addressed in ASC 606. Latest insight IFRS 15 Revenue: Practical experiences from the market. IFRS 15 The IASB has proposed amendments to IFRS 15 in some of the areas discussed by the TRG. In the situation where the customer obtains control of the goods before shipping, the shipping and handling … The IASB recognizes that this may lead to differences between IFRS and U.S. GAAP but believes that IFRS 15, as written, is sufficient. In addition, we take no responsibility for updating old posts, but may do so from time to time. Yosef Barbut: I am not sure I follow though. ASU 2016-10 was issued in April 2016 and amended ASC 606 for shipping and handling activities as follows: If the customer takes control of the good before shipment: If the customer takes control of the goods after shipment: Assuming control of the goods passes to the customer prior to delivery, most entities would probably choose the election to account for shipping and activities as fulfillment costs, as this is their existing accounting and, quite frankly, it is easier than having to implement new systems, processes, and internal controls. those steps are. Either people feel that this is A CHALLENGE and they ask me how IFRS 15 can possibly affect them; OR Reporting revenue under IFRS 15 is now one of the ordinary activities of companies in the 100+ countries that use IFRS Standards. In particular, IFRS 15 includes new guidance on accounting for repurchase agreements, including scenarios when those goods will or may be repurchased as part of another asset and when goods that … However, as your business grows and evolves – whether by developing new products and services, embedding technological innovations or buying new businesses – you may be facing challenges in applying IFRS 15 to new facts and circumstances. FASB’s proposal would amend certain aspects of the 2014 revenue standard, specifically the guidance on identifying performance obligations and the implementation guidance on licensing. What about past practice of replacing stolen and broken goods? Shipping and handling activities When shipping and handling is performed after control of the good is transferred to the customer, the Thanks. As a result, Larry’s Loudspeakers would have to make an accounting policy election to account for shipping and handling either as a fulfillment cost or as a separate performance obligation. reviewed and modified in shipping com panies for implementing IFRS 15. However, costs incurred related to shipping and handling do not meet the definition of an asset nor are they eligible for capitalization. Reporting revenue under IFRS 15 Revenue from Contracts with Customers is now one of your ordinary activities. The article stopped short, however, of making the statement that "shipping and handling costs that are incurred after a customer takes control "must be treated as a separate performance obligation" or "should be assessed to determine..". FOB shipping point), then S&H cannot be combined with the goods. The transition date for the new revenue recognition standards (ASC 606 and IFRS 15 Revenue from Contracts with Customers) is quickly approaching for private companies!Although it's … take stock – to pull together, in one place, what we have learned about this new world of revenue recognition. I'm not sure if this is an election but I've seen some diversity in practice and am having trouble finding clear guidance. Only when the customer takes control of the goods before they are shipped, would S&H be a separate performance obligations. Mike, great comments. The reasons for the IASB’s When control of the goods takes place after shipment (destination terms), are the fulfillment costs classified in cost of sales or within selling and marketing expenses? ... relating to shipping and handling activities that the IASB is not proposing to address. In this webcast, our experts discuss their practical experiences from the market as well as the challenges and opportunities presented by the new IFRS 15 revenue standard. Disclaimer This post is published to spread the love of GAAP and provided for informational purposes only. IFRS 15 requires an entity to assess the goods or services promised in a contract to identify the performance obligations in that contract. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.  | Tags: Accounting. IFRS in Practice 20202021 IFRS 15 Revenue from Contracts with Customers 5 In step 3 a vendor determines the transaction price of each contract identified for accounting purposes in step 1, and then in step 4 allocates that transaction price to each of the performance obligations identified in step 2. The relevant guidance is in ASC 605-45-45-20. Midlothian, Virginia 23114, PH + 1 (804) 897-0608 If so, what is the remaining credit, some sort of deferred revenue? Perhaps reach out to me directly. Some of the key differences between IFRS 15 and ASC 606 are as follows: Identification of distinct goods and services. 902 0 obj <> endobj That said, as noted in the blog post, companies have an accounting policy choice to either treat such S&H fees as a separate performance obligation or as a fulfillment cost. It is hosted by GAAP Dynamics. In the May 2018 edition of Accounting Alert we discussed the five step model for revenue recognition introduced by IFRS 15 Revenue from Contracts with Customers (“IFRS 15… That aside, the GAAP treatment of S&H shouldn't matter and depends on when the customer takes control of the goods. Using your example, let's say your company purchased inventory for $100. Follow-up question: What about under IFRS? Entities must make an accounting policy election to treat shipping and handling activities as either a fulfillment cost or as a separate promised service (i.e. FOB Shipping Point), IFRS requires them to be considered a separate performance obligation. Simply, they are the costs incurred to fulfill an order. For more information visit www.ifrs.org Page 1 of 3 1. Keep up-to-date on the latest insights and updates from the GAAP Dynamics team on all things accounting and auditing. In summary, if a promised good or service is “distinct,” it represents a separate performance obligation. Under IFRS 15, revenue is recognized upon delivery, including S&H fee, and then S&H fee is a cost of sales). Under existing U.S. GAAP, many companies do not account for shipping and handling activities separately, but rather treat them as fulfillment costs. 41 . 1 ASC 606/IFRS 15: THE DEFINITIVE GUIDE TO NEW REVENUE RECOGNITION RULES ASC 606/IFRS 15: The Definitive Guide to … It should not be applied by analogy to other type of activities such as custodial or storage services, which may be considered separate performance obligations in accordance with ASC 606-10-25-17 or immaterial in the context of the contract in accordance with ASC 606-10-25-16A. What exactly are “repurchase agreements” and what is their impact on accounting for revenue under IFRS 15? 0 Some fulfillment costs meet the definition of an asset, such as inventory. Shipping and handling activities When shipping and handling is performed after control of the good is transferred to the customer, the amendments permit entities, as an accounting policy election, to account for shipping and handling … When ASC 606 was issued, stakeholders had diverse views as to whether shipping and handling activities should be considered a separate performance obligation, as it represented a distinct service promised to the customer, or whether they should be considered a fulfillment activity. IFRS 15 includes specific requirements related to “customer options for additional goods or services” and requires a distinction to be made as to whether this option confers a “material right”. The remaining portion of revenue (i.e. Step 5 – Recognize Revenue (December 15, 2015) General Guidance. For all other entites the effective date for interim periods is the fiscal years beginning after Dec. 15, 2019. If your business is not a freight or shipping business (which I suspect it isn't) then what you are really talking about is shipping and handling costs. Thank you - however for where the goods were sold FOB what is the treatment under IFRS 15 ? It is imperative that entities take … This IFRS newsletter brings you the latest on the new revenue standard, IFRS 15. close. Cr. Mar 22, 2020 at 07:09 AM, Mike, The International Financial Reporting Standards Foundation is a not-for-profit corporation incorporated in the State of Delaware, United States of America, with the Delaware Division of Companies (file no: … Thanks, Mike Walworth, CPA: Do you just record the inventory at $103? State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Components of a Contract (IFRS-15/ASC (606-10-25-2) b) Parties to the contract have approved & committed to perform. which shipping and handling is an issue for IFRS constituents. You have one performance obligation and revenue is not recognized until control is passed to the customer (as noted in the post). © 2020 GAAP Dynamics All Rights Reserved. 43 . Scribd es el sitio social de lectura y editoriales más grande del mundo. It is not required to be made at an entity level. Posted on Mar 14, 2017 by Thanks for question, Ashish. FOB Destination), then essentially U.S. GAAP and IFRS require the same accounting treatment. Agenda Paper 7C: Licensing—feedback on ED and redeliberations The IASB confirmed its previous decisions to clarify the application guidance in IFRS 15 relating to the following licensing issues, as proposed in the ED: a. To identify performance obligations in a contract, ... IFRS. 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