Revenue for Telecoms

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108 | Revenue for Telecoms – Issues In-Depth | 5 Step 4: Allocate the transaction price to the performance obligations in the contract Example 43 – Bundle discount allocated to all performance obligations in a contract 606-10-32-37 [IFRS 15.82] Telco B offers phone, internet and television services to residential customers, at 20, 30 and 40 per month, respectively. If a customer contracts for either phone and internet or internet and television services, a discount of 5 is given by Telco B. If the customer takes all three services, then Telco B gives a discount of 10. Because the discount attributable to each bundle is not the same and the analysis of the services in each bundle does not provide observable evidence that the discount relates to just one or two services, the discount of 10 is allocated to all three services as shown below. Performance obligation Stand-alone selling prices Allocation of discount Price allocation Phone 20 10 x 20 ÷ 90 18 Internet 30 10 x 30 ÷ 90 27 Television 40 10 x 40 ÷ 90 35 Example 44 – Discount allocated entirely to one or more, but not all, performance obligations in a contract 606-10-55-259 – 55-264 [IFRS 15.IE167–IE172] Telco C enters into a contract with a residential customer to sell phone, internet and television services for a total amount of 120. Telco C regularly sells the products individually for the following prices. Product Stand-alone selling prices Phone 40 Internet 55 Television 45 Total 140 Telco C also regularly sells phone and internet services together for 75. The contract includes a discount of 20 on the overall transaction (140 - 120), which is allocated proportionately to the three services in the contract when applying the relative stand-alone selling price method. However, because Telco C regularly sells phone and internet services as a bundle for 75 (at a 20 discount compared with their total selling price of 95 (55 + 40)) and television services for 45, it has evidence that the entire discount should be allocated to the phone and internet services. Home © 2016 KPMG LLP, a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. © 2016 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Revenue for Telecoms – Issues In-Depth | 109 5.2 Allocate the transaction price | The discount of 20 is individually allocated to those two services with reference to their relative stand-alone selling prices as follows. Performance obligation Stand-alone selling prices Selling price ratio Price allocation Calculation Phone 40 42% 32 (75 x 42%) Internet 55 58% 43 (75 x 58%) Total 95 100% 75 Telco C will recognize revenue of 32 for phone, 43 for internet and 45 for television services. Observations Analysis required when a large number of goods or services are bundled in various ways Some arrangements involve several different goods or services that may be sold in various bundles. In this case, a telecom entity may need to consider numerous possible combinations of products to determine whether the entire discount in the contract can be allocated to a particular bundle. This may represent a challenge for telecom entities, given the number of marketing offers and the frequency with which they are changed. However, this analysis is required only if the telecom entity regularly sells each good or service – or bundle of goods or services – on a stand-alone basis. Therefore, if the telecom entity regularly sells only some of the goods or services in the contract on a stand-alone basis, then the criteria for allocating the discount entirely to one or more, but not all, of the performance obligations are not met and further analysis is not required. Determination of ‘regularly sells’ will be a key judgment Under the guidance on allocating a discount entirely to one or more performance obligations, a bundle of goods or services has to be regularly sold on a standalone basis. A telecom entity may need to establish a policy to define ‘regularly sells’. This may include considering volume and frequency. The telecom entity will need processes and related controls to monitor sales transactions and determine which bundles are regularly sold. © 2016 KPMG LLP, a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. © 2016 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Home
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Revenue for Telecoms

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