Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 107
5.2 Allocate the transaction price |
Comparison with current US GAAP
Removal of the contingent cap
ASU 2014-09.BC287–BC293, 605-25-30
The allocation of arrangement consideration to delivered items is currently
limited to amounts of revenue that are not contingent on a telecom entity’s future
performance (often referred to as ‘the contingent cap’). Currently, many wireless
contracts are subject to the contingent cap methodology. That methodology
limits the amount of revenue recognized for handsets that are delivered at the
beginning of the contract to the amount of cash received when the remaining
payments under the arrangement are contingent on the ongoing network service.
The new standard does not have such a limitation: the full estimated transaction
price – which includes all amounts, including contingent amounts, to which the
telecom entity expects to be entitled – is allocated on a relative stand-alone
selling price basis to each separate performance obligation.
However, the recognition of variable consideration may be constrained (see 4.2).
Nevertheless, the new standard’s removal of the contingent cap may accelerate
the recognition of contingent or variable consideration. In previously constrained
arrangements, telecom entities will allocate more transaction price to the
handset, which will ultimately result in more revenue being recognized when the
handset is transferred to the customer. This allocation will also reduce the amount
of monthly service revenue recognized in bundled arrangements.
5.2.1 Allocating a discount
Requirements of the new standard
606-10-32-36
[IFRS 15.81]
606-10-32-37
[IFRS 15.82]
If the sum of the stand-alone selling prices of a bundle of goods or services exceeds
the promised consideration in a contract, then the discount is generally allocated
proportionately to all of the performance obligations in the contract. However, this
does not apply if there is observable evidence that the entire discount relates to only
one or more of the performance obligations.
This evidence exists, and a discount is allocated entirely to one or more, but not all, of
the performance obligations, if the following criteria are met:
– the entity regularly sells each distinct good or service, or each bundle of distinct
goods or services, in the contract on a stand-alone basis;
– the entity also regularly sells, on a stand-alone basis, a bundle (or bundles) of some
of those distinct goods or services at a discount to the stand-alone selling prices of
the goods or services in each bundle; and
– the discount attributable to each bundle of goods or services is substantially the
same as the discount in the contract, and an analysis of the goods or services in
each bundle provides observable evidence of the performance obligation(s) to
which the entire discount in the contract belongs.
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