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Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of
Depreciation and Amortisation
These amendments clarify that a depreciation or amortisation method that is based on
revenue is not appropriate, since it reflects factors other than the expected pattern of
consumption of the future economic benefits embodied in an asset.
The amendments to IAS 16 clarify that revenue is affected by numerous factors, not all
of which have a bearing upon the way in which an asset is consumed. The amendments
cite as examples changes in sales volumes and prices or inflation.
The amendments to IAS 38, Intangible Assets introduce a rebuttable presumption that
an amortisation method that is based on the revenue is inappropriate for the same
reasons as those stated above in the case of the IAS 16 amendments. However, this
presumption can be overcome only in two very limited circumstances:
- When the intangible asset is expressed as a measure of revenue.
- When it can be demonstrated that revenue and the consumption of the economic
benefits of the intangible asset are highly correlated.
In these circumstances, an amortisation method that is based on the revenue that is
expected to be generated by an intangible asset may be appropriate.
IFRS 15, Revenue from Contracts with Customers
An entity shall apply this standard to all contracts with customers other than to those
that are within the scope of other IFRSs, such as lease, insurance contracts and financial
instruments.
An entity recognises revenue in accordance with that core principle by applying the
following five steps:
- Identify the contract(s) with a customer. The parties to the contract have approved the
contract (in writing, orally or in accordance with other customary business practices).
- Identify the performance obligations in the contract. The customer can benefit from the
good or service either on its own or together with other resources that are readily
available to the customer and the entity’s promise to transfer the good or service to the
customer is separately identifiable from other promises in the contract.
- Determine the transaction price. An entity shall estimate the amount of consideration
to which it expects to be entitled in exchange for transferring the promised goods or
services to a customer.
- Allocate the transaction price to the performance obligations identified in the contract.
An entity shall allocate the transaction price to each performance obligation on the basis
of the relative stand-alone selling prices of each distinct good or service promised in the
contract.
- Recognise revenue when (or as) the entity satisfies a performance obligation. A
performance obligation is satisfied when control of the promised good or service is
transferred to a customer.