Revenue for Telecoms

122 | Revenue for Telecoms – Issues In-Depth
| 6 Step 5: Recognize revenue when or as the entity satisfies a performance obligation
606-10-55-18
[IFRS 15.B16]
606-10-25-36 – 25-37
[IFRS 15.44–45]
As a practical expedient, if an entity has a right to invoice a customer at an amount
that corresponds directly with its performance to date, then it can recognize revenue
at that amount. For example, in a services contract an entity may have the right
to bill a fixed amount for each unit of service provided or for each time period (e.g.
each month).
An entity recognizes revenue over time only if it can reasonably measure its progress
toward complete satisfaction of the performance obligation. However, if the entity
cannot reasonably measure the outcome but expects to recover the costs incurred in
satisfying the performance obligation, then it recognizes revenue to the extent of the
costs incurred.
The new standard contains guidance on measuring and adjusting measures of
progress when input methods are used – e.g. uninstalled materials. See 5.5.3.3 in
Issues In-Depth, Edition 2016 for further information.
Example 48 – Monthly prepaid wireless contract
Telco M enters into a monthly prepaid contract with wireless Customer B for
200 minutes per month of voice services. Customer B pays 30 per month in
advance. Customer B can use the minutes at any time during the month. Once
the 200 minutes are used, the handset remains connected to the network and
can accept calls. That is, incoming calls are not included in the 200 minutes
per month.
Telco M first concludes that Customer B simultaneously receives and consumes
the benefits from the services as it is provided and thus the performance
obligation is satisfied over time. Furthermore, Telco M determines that the
nature of its promise is to provide network services to Customer B throughout
the month because incoming calls are not included in the 200 minutes.
Consequently, the number of minutes used does not appear to appropriately
depict the satisfaction of that promise. Instead, the more appropriate measure
of progress appears to be time elapsed. Telco M therefore recognizes revenue of
30 evenly throughout the month.
Example 49 – Wireless service contract with rollover minutes feature
Telco N enters into a two-year wireless contract with Customer C for prepaid
voice services. The voice plan allows the Customer C to use 600 minutes each
month for incoming and outgoing calls. After the 600 minutes are used, the
handset can no longer be used to make or receive calls during that month. If
Customer C does not use all of the minutes, then Customer C is able to roll over
the unused minutes to the subsequent month. For the purposes of this example,
breakage is ignored.
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