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Revenue from Contracts · 8 questions

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Under IFRS 9, the ECL model is forward-looking — provision from Day 1, not only on evidence of default.

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IFRS 16 — Leases

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◆ IFRS 15 Advanced

Medium ⏱ ~45 sec

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IFRS 15

Revenue from Contracts

›

Core Principle

Recognise revenue to depict transfer of goods/services at the amount expected to be received.

5-Step Model

1. Identify contract → 2. Identify POs → 3. Determine price → 4. Allocate → 5. Recognise.

Dr Receivable / CashX

Cr RevenueX

⚠️ EXAM TRAP

Recognising on invoice rather than transfer of control.

IFRS 16

Leases

›

Core Principle

Lessees recognise ROU asset + lease liability for almost all leases at PV of payments.

Dr ROU AssetX

Cr Lease LiabilityX

⚠️ EXAM TRAP

Continuing operating-lease treatment for lessees after 2019.

IFRS 9

Financial Instruments

›

Core Principle

Classify at amortised cost, FVOCI or FVPL. ECL model: Stage 1 = 12m, Stage 2 = Lifetime (SICR), Stage 3 = Lifetime credit-impaired.

Dr Credit Loss ExpenseECL

Cr Loss AllowanceECL

⚠️ EXAM TRAP

IFRS 9 is forward-looking — ECL from day 1, not on evidence of default.

IAS 16

Property, Plant & Equipment

›

Core Principle

Recognise at cost; subsequently cost or revaluation model (policy choice per class). Depreciate over useful life.

Dr PPE (Cost)X

Cr Cash / PayablesX

⚠️ EXAM TRAP

Revaluation gains go to OCI, not P&L. Training costs are never capitalised.

IAS 36

Impairment of Assets

›

Core Principle

Recoverable amount = higher of FVLCD and VIU. Impair when CA > RA. Goodwill tested annually.

Dr Impairment Loss (P&L)X

Cr Acc. Impairment / AssetX

⚠️ EXAM TRAP

Goodwill impairment is NEVER reversed under IFRS.

IAS 37

Provisions & Contingencies

›

Core Principle

Provision when: (1) present obligation from past event, (2) probable outflow, (3) reliable estimate.

Dr Expense (P&L)X

Cr ProvisionX

⚠️ EXAM TRAP

Cannot provision for future operating losses — no present obligation.

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Statement of Financial Position

IAS 1

Non-Current Assets

Property, Plant & Equipment

Intangible Assets

Right-of-Use Assets (IFRS 16)

Total Non-Current Assets—

Current Assets

Inventories (IAS 2)

Trade Receivables

Cash & Equivalents

Total Current Assets—

TOTAL ASSETS—

Equity

Share Capital

Retained Earnings

Total Shareholders' Equity—

Non-Current Liabilities

Long-term Borrowings

Lease Liabilities NC (IFRS 16)

Total NC Liabilities—

Current Liabilities

Trade Payables

Total Current Liabilities—

Total Liabilities—

TOTAL EQUITY & LIABILITIES—

IFRS Disclosures

0 done

Complete set of financial statements (5 components + notes)

IAS 1.10

Going concern assessment disclosure

IAS 1.25

Disaggregation of revenue

IFRS 15.114

ROU asset class disclosure & lease maturity

IFRS 16.47

Goodwill / intangibles by CGU + key assumptions

IAS 36.134

Risk exposures from financial instruments

IFRS 7.31

Components of tax expense

IAS 12.79

Reconciliation of effective tax rate

IAS 12.81

Description of provisions & expected timing

IAS 37.85

NEW STANDARDJan 2025

IFRS 18 — Presentation & Disclosure

Replaces IAS 1. Introduces categorised income statement: operating, investing, financing sections.

AMENDMENTAug 2023

IAS 21 — Lack of Exchangeability

Guidance on when a currency is not exchangeable and how to estimate the spot rate.

EXPOSURE DRAFTSep 2024

IFRS for SMEs — Third Edition

Aligns SME standard with full IFRS updates including IFRS 15 & 9.

AMENDMENTMay 2024

IFRS 9 & IFRS 7 — Power Purchase Agreements

Targeted amendments for renewable energy contract accounting.

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IFRS 15

Contract modification adding distinct goods at SSP → treated as a separate new contract.

IAS 36

Recoverable amount = higher of FVLCD and Value in Use.

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IFRS 15 Key PointsToday

5-step model: contract → POs → price → allocate → recognise...

IAS 36 Impairment ChecklistYesterday

Annual test for goodwill. RA = max(FVLCD, VIU). Never reverse goodwill...

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💰 WACC — Weighted Average Cost of Capital

WACC = Ke × E/(D+E) + Kd × (1−t) × D/(D+E)

Ke — Cost of Equity (%)

Kd — Cost of Debt (%)

Tax Rate (%)

Equity (E)

Debt (D)

WACC =9.60%

📈 CAPM — Cost of Equity

Ke = Rf + β × (Rm − Rf)

Rf — Risk-free Rate (%)

β — Beta

Rm — Market Return (%)

Ke =11.40%

🌱 Gordon Growth Model — Share Valuation

P₀ = D₁ / (Ke − g)

D₁ — Next Dividend

Ke — Cost of Equity (%)

g — Growth Rate (%)

P₀ =$31.25

📊 Key Financial Ratios — Live Calculator

Revenue

Cost of Sales

Current Assets

Inventories

Current Liabilities

EBIT

Capital Employed

PAT

Shares (millions)

Pref Dividends

📦 NRV — Net Realisable Value (IAS 2)

NRV = Selling Price − Costs to Complete − Selling Costs

Estimated Selling Price

Costs to Complete

Selling Costs

NRV =400

📋 IFRS 16 — Lease Amortisation Table

Lease Liability = PV of lease payments at IBR (or implicit rate)

Annual Payment

IBR / Rate (%)

Term (years)

Initial Lease Liability =2,723

Year	Opening	Interest	Payment	Closing

Journal entry each year: Dr Lease Liability (principal) · Dr Interest Expense · Cr Cash

🏦 IFRS 9 — Expected Credit Loss Calculator

ECL = PD × LGD × EAD

PD — Probability of Default (%)

Stage 1: 12-month PD · Stage 2/3: Lifetime PD

LGD — Loss Given Default (%)

Typically 40-65% for unsecured receivables

EAD — Exposure at Default

Outstanding balance at default

ECL Provision =3,000

🏗️ IAS 16 — Depreciation Calculator

Straight-line: Dep = (Cost − Residual) / Useful Life

Cost of Asset

Residual Value

Useful Life (years)

Year Number (for NBV)

Annual Dep =4,500

NBV (Yr 3) =36,500

2 free comparisons/day

IFRS 16 vs IAS 17

Exam Key

OLD — IAS 17

❌ Operating lease off-BS
❌ Only finance leases on SFP
❌ Straight-line expense

NEW — IFRS 16

✅ All leases on SFP
✅ ROU asset + liability
✅ Interest + depreciation

IAS 37 vs IAS 10

Common Confusion

IAS 37 PROVISIONS

Past event creates present obligation. Probable outflow. Reliable estimate. → RECOGNISE liability.

IAS 10 EVENTS

Adjusting: conditions existed at year-end. Non-adjusting: arose after. → Adjust vs disclose.

IFRS 9 ECL Stages

IFRS 9

Stage	Trigger	ECL	Interest
1	No SICR	12-month	Gross
2	SICR	Lifetime	Gross
3	Impaired	Lifetime	Net

Marginal vs Absorption

Costing

MARGINAL

Fixed costs = period costs. Inventory excludes fixed. Contribution-based. No inventory effect.

ABSORPTION

Fixed costs in product cost. Inventory includes fixed. Profit higher when inventory rises. Required by IAS 2.

⚠️ The most commonly missed exam points. Master these to gain easy marks.

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2025

IFRS 18 — Presentation & Disclosure

Replaces IAS 1. Categorised P&L: operating / investing / financing. Effective 2027.

2021

IFRS 17 — Insurance Contracts

Replaced IFRS 4. GMM, PAA and VFA measurement models. Effective 2023.

2016

IFRS 16 — Leases

Replaced IAS 17. Effective 2019. Added ~$3 trillion to global balance sheets.

2014

IFRS 15 — Revenue from Contracts

Replaced IAS 18 & IAS 11. Universal 5-step model. Effective 2018.

2014

IFRS 9 — Financial Instruments

Replaced IAS 39. Forward-looking ECL model. Effective 2018.

2005 & earlier

IAS Foundation Standards

IAS 1, 2, 7, 8, 10, 12, 16, 19, 36, 37, 38, 40 — the core accounting rulebook.

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Audit Working Paper

ISA 315

Client: Meridian Retail PLC | Year end: 31 Dec 2025 | Prepared by: Senior Auditor

Area: Revenue Recognition (IFRS 15)

Risk: Management override — cut-off manipulation

Assertion: Completeness, Accuracy, Cut-off

Procedures performed:

□ Agreed sample of revenue entries to invoices

□ Tested cut-off — 5 days either side of year-end

□ Confirmed contract terms for 3 large customers

□ Reviewed contract modifications for revenue impact

Findings

⚠ EXCEPTION NOTED

Invoice #4471 dated 2 Jan 2026 relates to goods dispatched 29 Dec 2025. Revenue of $84,000 should be recognised in 2025.

✓ SATISFACTORY

Cut-off procedures confirm no material misstatement in remaining sample of 42 items.

Audit Conclusion

Essential Finance Formulas

=NPV(rate,cashflows)

Net Present Value — excludes Year 0 outflow

=IRR(values)

Internal Rate of Return

=PV(rate,nper,pmt)

Present Value — use for lease liability calculation

=XLOOKUP(lookup,range,return)

Modern replacement for VLOOKUP

=SUMIF(range,criteria,sum_range)

Conditional sum — useful for trial balance analysis

Power User Shortcuts

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F4

Toggle $absolute refs

Ctrl+T

Create Table

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Error Diagnosis

#REF!

Referenced cell was deleted. Trace dependents (Ctrl+]) to find.

#VALUE!

Wrong data type in formula. Check for text in numeric cells.

#DIV/0!

Division by zero. Use =IFERROR(A1/B1,"—") to handle.

#N/A

Lookup value not found. Check exact/approximate match in VLOOKUP.

IFRS 16 — Lease Amortisation

Worked

Facts: 3-year lease, annual payment $10,000 payable at year-end, IBR = 5%.
Step 1 — Calculate PV: PV = 10,000/1.05 + 10,000/1.05² + 10,000/1.05³ = $27,232

Year	Opening	Int 5%	Payment	Closing
1	27,232	1,362	(10,000)	18,594
2	18,594	930	(10,000)	9,524
3	9,524	476	(10,000)	0

IAS 16 — Straight-Line Depreciation

Worked

Facts: PPE cost $50,000, residual value $5,000, useful life 10 years.

Depreciation = (Cost − Residual) / Useful Life
= ($50,000 − $5,000) / 10 = $4,500/year

Journal Entry (each year):
Dr Depreciation Expense $4,500
Cr Accumulated Depreciation $4,500

NBV after Year 3: $50,000 − (3 × $4,500) = $36,500

IFRS 9 — ECL Calculation

Worked

Facts: Trade receivable $100,000, Stage 1 (12-month). PD = 3%, LGD = 45%.

ECL = PD × LGD × EAD
= 3% × 45% × $100,000 = $1,350

Journal Entry:
Dr Credit Loss Expense $1,350
Cr Loss Allowance $1,350

If SICR occurs → move to Stage 2 → use Lifetime ECL instead of 12-month.