1. Using Revenue Management
  2. Example of ASC 606 and IFRS-15 Accounting

Example of ASC 606 and IFRS-15 Accounting

In this example, John enters into a 12-month telecommunications plan with the local mobile operator ABC. This example uses ASC 606 and IFRS-15 accounting.

ASC 606 and IFRS-15 accounting employs the five key revenue recognition steps:

  1. Identify the Contract: Provide 12-month plan to John.
  2. Identify the performance obligations in the contract:
    • Obligation 1: Deliver a mobile phone.
    • Obligation 2: Provide network services over a one-year period.
  3. Determine the transaction price: With a monthly charge of 100 USD, the transaction price for one year is 1200 USD.
  4. Allocate the transaction price to the performance obligations in the contract:

    Performance Obligation Allocation

    Performance Obligation No. Performance Obligation Selling Amount SSP % of Total Revenue Amount (Ratio of SSP * Transaction Price = 1200) Satisfaction Date Plan Start Date Plan End Date
    1 Mobile phone 0 USD 300 USD =300/1260*100% = 23.8% 23.8%*1200 = 285.60 01-JAN-2022
    2 Network services 100*12 = 1200 USD 80*12 = 960 USD = 960/1260*100% = 76.4% 76.4% * 1200 = 914.40 01-JAN-2022 31-DEC-2022
    Total 1200 USD 1260 USD 100% 1200 USD
  5. Recognize revenue when (or as) the entity satisfies a performance obligation.

    The revenue from the sale of the mobile phone, 285.60 USD, is recognized on 01-JAN-2022. The revenue from the sale of the network services is recognized at a rate of 76.40 (= 914.40/12) USD per month, at the end of every month.

    This table shows the satisfaction event and billing event entries for the network services through February 2022, but these satisfaction and billing event entries will continue to occur through the end of December 2022. At the end of the life of the contract the discount clearing account balance will net to zero (23.80 x 12 = 285.60).

    Note: In this table, a positive amount indicates a debit and a negative amount (in parentheses) indicates a credit.

    Satisfaction Event and Billing Event Entries

    Accounting Date Event Performance Obligation Number Product Receivables Contract Asset Contract Liability Discount Clearing Revenue Clearing Revenue
    01-JAN-2022 Initial performance event (shipment) 1 Revenue Management 285.60 (285.60)
    01-JAN-2022 Satisfaction event 1 Revenue Management 285.60 (285.60)
    10-FEB-2022 John receives a zero-dollar bill. 1 Revenue Management (285.60) 285.60
    31-JAN-2022 Receivables invoice (billing) 2 Receivables 100 (100)
    31-JAN-2022 Initial performance event (satisfaction) 2 Revenue Management 914.40 (914.40)
    31-JAN-2022 Satisfaction event 2 Revenue Management 76.40 (76.40)
    31-JAN-2022 Billing event (imported from Receivables) 2 Revenue Management (76.40) (23.80) 100
    28-FEB-2022 Receivables invoice (billing) 2 Receivables 100 (100)
    28-FEB-2022 Satisfaction event 2 Revenue Management 76.40 (76.40)
    28-FEB-2022 Billing event (imported from Receivables) 2 Revenue Management (76.40) (23.80) 100