The accounting period beginning after 1 January 2018 is the first period, in which accounting entities drawing up an accounting statement according to IFRS will use the new rules for reporting revenues. We are convinced that accounting entities that keep accounts according to Czech accounting standards may find inspiration for determining the moment of reporting revenues in this standard as well. Reporting of revenues is treated very sporadically in the Czech accounting standards and the scope of the IFRS 15 standard (in terms of the number of pages) represents approximately one half of the full text edition of Accounting for Entrepreneurs (edice ÚZ Účetnictví podnikatelů).

Four moves precede the reporting of revenue itself:

1. Identification of the contract
2. Identification of contractual obligations
3. Determination of the transaction price
4. Allocation of the transaction price to the individual contractual obligations

The fifth move is then the reporting of revenue upon fulfilment of contractual obligation.

Identification of the contract is important mainly from the perspective of allocation of the transaction price, for example in the situation when the accounting entity begins to supply another product to the customer at a significant discount, which is, however, provided with regard to the fact that the customer is already buying another product. In this situation, it is necessary to assess, if these are two independent contracts and negotiated transaction prices, or if the provided discount is the result of the customer already buying other products and if the provided discount should not be allocated to all supplied products.

Determination of contractual obligations is necessary for correct determination of the moment, on which the revenue will be reported. For example supply of a product and its installation – are these two contractual obligations and the revenue will thus be reported upon supply of the product and then upon completion of the installation, or is it one contractual obligation and the revenue will be reported in a single step after installation has been completed? A certain guideline in these situations may be, if the accounting entity also sells these services separately and if the client can order these services (in this case installation) from another company as well. For example in the production and assembling of wardrobes, it will probably be one contractual obligation, while in the case of supply and installation of an air-conditioning unit, it may be two contractual obligations. The situations, when an accounting entity supplies something to the customer “free of charge”, are also interesting. “Free of charge” here depends on the purchase of other goods or service and it will probably be several contractual obligations, for which the transaction price must be allocated.

For allocation of the transaction price to the individual contractual obligations, the IFRS 15 presents rules to us, according to which accounting entities should progress. The most suitable way for determining the individual contractual obligations is by reference to already existing prices of the individual products and services. But how to proceed in case the accounting entity does not sell the given services separately? The price can then be determined either by comparison with the price of similar goods or service offered by another accounting entity, or, as the last suitable option, the IFRS

15 states calculation of the price based on expended costs raised by the usual profit mark-up of the accounting entity.

IFRS 15 also partially deals with the reporting of some costs, which were expended in connection with expected revenues, and deals with the question of activation of such costs and their reporting in the profit and loss account during the period of realisation of the revenues. It is possible to activate only costs, which would not have arisen in case the contract with the customer had not been made. For example remuneration to a lawyer for preparing a contract or commission to a real estate agency for mediating a lease.

Each of the above-mentioned areas is described in great detail in the IFRS 15 including illustrative examples. IFRS 15 was endorsed by the European Commission and transposed by decree number 2016/1905 of 22 September 2016 and its Czech version can be found at here

This text was subsequently updated twice, by regulation of the commission number 2017/1986 and number 2017/1987 of 31 October 2017.

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