Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 15
1.3 Partially in scope |
Example 4 – Partially in scope transaction
Telco A enters into a contract that includes a promise to provide telecom
equipment and services to Customer C. Telco A first applies the leasing standard
to assess whether the arrangement contains a lease.
If Telco A concludes that the use of the equipment represents a lease, then the
equipment will be accounted for under the leasing standard. Because the leasing
standard contains guidance on how to identify a lease component and allocate
the transaction price between lease and non-lease components, Telco A first
applies that guidance.
If Telco A concludes that the equipment is not leased, then the entire contract
would be accounted for under the new standard. In applying the new standard,
Telco A would follow all of the relevant guidance, including the requirement to
determine whether the equipment is distinct from the service (see Section 3).
Observations
Guidance included for product and service warranties
606-10-55-30 – 55-35
[IFRS 15.B28–B33]
Telecom entities that offer equipment warranties incremental to manufacturers’
warranties apply the guidance in the new standard to determine whether these
warranties are service warranties. If they are, then they would be accounted
for as separate performance obligations under the new guidance. If they are not
accounted for as separate performance obligations, then these warranties are
generally covered by other guidance and give rise to a cost accrual (see 3.8).
Service contracts often include clauses where the telecom entity guarantees
its customer a certain quality of service or performance. These service-level
arrangements may increase or decrease the consideration ultimately received
by the telecom entity and therefore need to be assessed when determining the
transaction price (see 4.2).
Leased equipment accounted for under the leases guidance
Topics 840, 842
[IAS 17, IFRS 16]
When a telecom service contract includes equipment, the telecom entity needs
to assess whether that equipment is sold, leased or provided to the customer
as part of its service. This assessment is required even if the contract does not
explicitly refer to the equipment as leased or the lease payments are not billed
separately from other services.
Overall, the telecom entity considers the leases guidance to determine if the
transaction includes one or more elements that meet the definition of a lease. In
some cases, this conclusion may vary depending on whether the telecom entity
applies the current or new leases guidance.
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