Contract Assets and Liabilities under Ifrs 15

Under the International Financial Reporting Standards (IFRS) 15, contract assets and liabilities play a significant role in the recognition of revenue. As a professional, this article will discuss contract assets and liabilities under IFRS 15.

What are Contract Assets and Liabilities?

Contract assets and liabilities are terms used in IFRS 15 to describe the financial implications of contracts between two or more parties. Contract liabilities arise when a company receives payment from a customer before delivering goods or services, while contract assets arise when a company delivers goods or services before receiving payment.

According to IFRS 15, companies are required to recognize contract assets and liabilities separately from other assets and liabilities on their balance sheet. The standards aim to provide a clear picture of the financial status of the company at any given time, including the amount of revenue that it has earned and the amount of revenue that it is expected to earn in the future.

Recognition of Contract Assets and Liabilities

Under IFRS 15, recognition of contract assets and liabilities is dependent on several criteria. For example, a contract liability is recognized when a company receives payment from the customer, and the delivery of goods or services is yet to be made. On the other hand, a contract asset is recognized when a company delivers goods or services, and payment has not yet been received.

To determine the amount of contract assets and liabilities, companies are required to perform a detailed analysis of each contract. This analysis should include the determination of performance obligations, transaction price, and the allocation of transaction price to performance obligations.

Disclosures Requirements

Companies are required to disclose contract assets and liabilities in their financial statements to give stakeholders an understanding of their financial situation. The disclosure should include a description of the nature, amount, and timing of revenue recognition, as well as any significant changes in contract assets and liabilities from the previous reporting period.

Conclusion

Overall, contract assets and liabilities have a significant impact on revenue recognition under IFRS 15. Companies must recognize these financial implications separately from other assets and liabilities and perform a detailed analysis of each contract to determine the amount of contract assets and liabilities. Proper disclosures are also required to provide stakeholders with a clear understanding of the financial situation of the company.

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