IAS 20, IFRS 15 - Revenue, construction contracts, and government grants

Publication date: 04 Apr 2019

Resources (This includes links to the latest standards, drafts, PwC interpretations, tools and practice aids for this topic)

Latest developments

In May 2014 the IASB issued a new standard on revenue recognition, IFRS 15. IFRS 15 sets out a single model for the recognition of revenue that apply to all contracts with customers. It is effective for annual reporting periods beginning on or after 1 January 2018, and it replaces the guidance in IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’, and the related interpretations. IFRS 15 is addressed in the Manual of Accounting chapter: IFRS Manual of Accounting chapter 11, Revenue from contracts with customers (IFRS 15) ’.

For further details see the IFRS 15 topic home page.

Overview

Revenue is the gross inflow of economic benefits arising in the ordinary course of an entity’s activities, and it is measured at the fair value of the consideration received or receivable. Where the substance of a single transaction indicates that it includes separately identifiable components, revenue is allocated to these components generally by reference to their fair values. Revenue is recognised for each component separately by applying the recognition criteria below. For example, where a product is sold with a subsequent service, revenue is allocated initially to the product component and the service component, and it is recognised separately thereafter when the criteria for revenue recognition are met for each component. IFRS 15 replaced IAS 18 and IAS 11 with effect from periods beginning on or after 1 January 2018.

Government grants – IAS 20

Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. Such government grants may be given to an entity to help finance a particular asset or other expenditure.

Recognition

Government grants are recognised when there is reasonable assurance that the entity will comply with the conditions related to them and that the grants will be received.

Grants related to income are recognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs that they are intended to compensate. They are either offset against the related expense or presented as income, either separately or under a general heading such as ‘other income’. The timing of such recognition in profit or loss will also depend on the fulfilment of any conditions or obligations attaching to the grant.

Grants related to assets are either offset against the carrying amount of the relevant asset or presented as deferred income in the balance sheet. Profit or loss will be affected either by a reduced depreciation charge or by deferred income being recognised as income systematically over the useful life of the related asset.

 
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