Question

What are the impacts (at least 5 impacts) of IFRS 15 on logistic software industry particular revenue recognition?

Answer 1

Impact On Logistic Software Industry

1.Transportation revenue and costs

Revenue is recognised for service transactions, such as freight services, based on the stage of completion of the transaction. Costs are recognised as incurred.

Impact: Transportation services will likely meet the criteria for revenue recognition over time as the customer simultaneously receives and consumes the benefit as the entity performs. The boards observed that the customer benefits from

2.Customer loyalty programmes — frequent flyer programmes

Customer loyalty programmes are accounted for as multiple-element arrangements. Consideration is allocated to the award credits based on their fair value, typically using the residual method, although the guidance also permits relative fair value. This amount is deferred and recognised as revenue when the award credits are redeemed or expire. The fair value of the award credits is adjusted for discounts available to other buyers absent entering into the initial purchase transaction and for expected forfeitures (breakage).

Impact: The new standard will require consideration to be allocated on a relative stand-alone selling price basis, which could have a different result than the residual approach applied today. Some entities might allocate less consideration to the award credits under the new guidance as a result.

3.Collectibility

Management must establish that it is probable that economic benefits will flow before revenue can be recognised.

Impact: Revenue will not be recognised for a contract for which the collectibility of the transaction price is not probable until one of the criteria to recognise revenue (as described in the left column) has been met. An entity that receives consideration from a customer in an arrangement that does not meet the collectibility threshold is not permitted to apply “cash basis” accounting, even if the cash received is non-refundable.

4.Variable consideration

Volume rebate payments are typically systematically accrued based on rebates expected to be taken. The rebate is recognised as a reduction of revenue based on the best estimate of the amounts potentially due to the customer. If the rebate cannot be reliably estimated, revenue is recognised at an amount no greater than the minimum consideration that the seller will retain.

Impact: Accounting for most volume rebates is unlikely to be significantly different under the new standard as compared to today's accounting (IFRS and US GAAP).

5.Time value of money

Discounting of revenues to present value is required where the arrangement effectively constitutes a financing transaction. The imputed rate of interest is the more determinable imputed interest rate of either: (i) the prevailing rate for a similar instrument of an issuer with a similar credit rating, or (ii) a rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services.

Impact: The guidance related to a significant financing component is different than current guidance related to applying the time value of money. That said, we do not expect a significant change to current practice for most transportation and logistics entities in connection with the time value of money, because payment terms do not often extend over more than one year from the timing of contract performance.