As such, they are expensed when incurred. revenue is recognized upon delivery, including S&H fee, and then S&H fee is a cost of sales). 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. The reasons for the IASB’s decisions are explained in 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 … Mike Walworth, CPA: In a previous post, we covered identifying performance obligations in the contract, which is step 2 of the new 5-step model within ASC 606. 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. However, if you deliver Thailand travel guide in September and Thai cuisine in October due to low stock, then you would need to split the transaction price of CU 50 based on the relative stand-alone selling prices and recognize revenue accordingly. 0 Step 5 – Recognize Revenue (December 15, 2015) General Guidance. ... read more, Views on how restrictions on financial instruments impact the determination of fair value are evolving, potentially changing current practice for investment companies under ASC 946. Mike Walworth, CPA I am not sure I follow though. If the customer takes control of the goods once they receive them (after shipment), then S&H must be treated as a fulfillment cost (i.e. take stock – to pull together, in one place, what we have learned about this new world of revenue recognition. which shipping and handling is an issue for IFRS constituents. 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. Some of the key differences between IFRS 15 and ASC 606 are as follows: Identification of distinct goods and services. Thanks for question, Ashish. The IASB decided to not make a similar amendment to IFRS 15. Reporting revenue under IFRS 15 Revenue from Contracts with Customers is now one of your ordinary activities. This would be the case under both U.S. GAAP (ASC 606) and IFRS (IFRS 15). One follow up question I was hoping you could clarify. 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. It is imperative that entities take … Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org. Keep up-to-date on the latest insights and updates from the GAAP Dynamics team on all things accounting and auditing. Our IFRS Newsletter: Revenue brings you the latest on the new revenue standard, IFRS 15. Very good question, Jason! 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: … IFRS 15 requires an entity to assess the goods or services promised in a contract to identify the performance obligations in that contract. What are fulfillment costs? This paper accompanies the following IASB agenda papers: (a) Agenda paper 7A Implications of amending IFRS 15 before the mandatory effective date. Basis for Conclusions to IFRS 15 and Example 19 include specific discussion on uninstalled materials (IFRS 15… Ashish Agarwal: Other retailers are starting to follow suit, offering free shipping on purchases, because Amazon is eating into their sales. Follow-up question: What if control of the promised goods transfers to the customer after the shipping and handling activities are performed? Dr. However, this election is only available to shipping and handling activities. In this revised scenario, shipping and handling activities would constitute a fulfillment activity, rather than a separate performance obligation. Shipping and handling activities would always be considered a fulfillment activity. 19. ... read more. ??? To identify performance obligations in a contract, ... IFRS. You recognize a portion of the revenue on the goods when control passes to the customer. Perhaps reach out to me directly. separate performance obligation). take stock – to pull together, in one place, … shipping and handling activities. ... Free shipping in... 2 - IFRS 15 mit SAP Revenue Accounting and Reporting, Brand New, Free shipping … To identify performance obligations in a contract, an entity evaluates whether ... IFRS… 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”. Identifying performance obligations is critical to revenue recognition under IFRS 15. Hope this helps! however, what is the appropriate classification in case of IFRS if S&H is treated as a combined performance obligation. Mike, great comments. IFRS 15 provides the 5 step framework on how and when to recognize the sale. TheseIFRS 15 ED areas include accounting for licences, principal versus agent ... shipping and handling … evaluates the impact of IFRS 15. for shipping and handling activities and is further expected to make narrow-scope amendments to the guidance on assessing collectability, presentation of sales-taxes and measuring non-cash … This IFRS newsletter brings you the latest on the new revenue standard, IFRS 15. close. In this post, we’ll cover the accounting for shipping and handling activities, specifically whether they should be treated as separate performance obligations. See Example 8 accompanying IFRS 15. 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. 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. 12 of the 13 IASB members present agreed with these decisions. For example, is "drop ship" from 3rd party suppliers/vendors equally determinable of control transfer? This issue was brought to attention of the Transition Resource Group (TRG) who discussed the matter and, ultimately, advised for clarifying guidance to be issued. Identifying performance obligations is critical to revenue recognition under IFRS 15. Thanks, Mike Walworth, CPA: See the appendix of this Heads Up for a comparison of the IASB’s and FASB’s guidance. FOB shipping point), then S&H cannot be combined with the goods. In this revised scenario, shipping and handling activities would constitute a fulfillment activity, rather than a separate performance obligation. Follow-up question: What about under IFRS? Clarifications to IFRS 15 Revenue from Contracts with Customers is issued by the International Accounting Standards Board® (the Board). Some of the key differences between IFRS 15 and ASC 606 are as follows: Identification of distinct goods and services. Using your example, let's say your company purchased inventory for $100. Thanks for reading!! Components of a Contract (IFRS-15/ASC (606-10-25-2) b) Parties to the contract have approved & committed to perform. 20. Some fulfillment costs meet the definition of an asset, such as inventory. FOB Destination)). The converged standard IFRS 15 Revenue from Contracts with Customers was issued on 28 May 2014 and must be applied in an entity's first annual IFRS financial statements … IFRS 15 also includes guidance on how to account for non-cash consideration. 1 ASC 606/IFRS 15: THE DEFINITIVE GUIDE TO NEW REVENUE RECOGNITION RULES ASC 606/IFRS 15: The Definitive Guide to … Latest insight IFRS 15 Revenue: Practical experiences from the market. IFRS 15 Contracts with Customers introduced a huge change and a very difficult challenge for almost every single company. 41 . IFRS guidance does not allow an entity to make a policy election to account for shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the good rather than as an additional promised service. Therefore passing it all along to the customer, where does this fall under GAAP? The presentation of fulfillment costs related to S&H is not addressed in ASC 606. EXAMPLE: REPURCHASE AGREEMENT 43 . sold separately by the … Posted on Mar 14, 2017 by Outside a lack of technology, part of the challenge is also interpreting the rules. Shipping and handling … 41 . Hope this helps, but I probably need a bit more information about your specific transaction to definitively opine. Mar 22, 2020 at 07:09 AM, Mike, In addition to the differences noted above, the FASB has provided an exception for accounting for shipping and handling activities and is … The amendments to IFRS 15 are not in all instances the same as those that the FASB is making to the US standard. IFRS 15 does not include the same specific guidance; however, IFRS reporters should consider the application of materiality concepts when identifying performance obligations. revenue guidance in IFRS 15, Revenue from Contracts with Customers. 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. Apr 23, 2019 at 11:14 AM. This is an inportant point that is a key part of this overall question. Inventory $103 ii. Under US GAAP, if these charges are separately stated on the contract, then they must be reported as revenue (assuming payment is reasonably assured). Does the accounting treatment differ from that under IFRS 15 (IFRS’s version of the new revenue recognition standard)? It is hosted by GAAP Dynamics. IFRS 15 provides the 5 step framework on how and when to recognize the sale. In the situation where the customer obtains control of the goods before shipping, the shipping and handling activities may be a separate performance obligation. 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. What about past practice of replacing stolen and broken goods? 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). 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