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FR and SBR : IFRS 15 Revenue from contracts with customers – A Example

Currently, Some hospital in Nepal have launched Gift card which can be purchased by visitors who came to meet the patients in the hospitals and gift that card to the patient and later patients can redeem the amount of the gift card through the purchase of medicine in the hospital. Now, the question is how the hospital recognize the revenue under IFRS 15?

Does the hospital recognize revenue straight way on the sale of gift card ? I think this might not be correct treatment.

There is a five step model for revenue recognition under IFRS 15. They are COPAR i.e., Contract identification with customer, performance Obligation/objective identification, determining transaction Price, Allocating transaction price to performance obligation/objective and Revenue recognition, either over time or at a point in time. Revenue should be recognized when or as the entities fulfills performance obligation.

In this example, first let us identify what is the performance obligation? The performance obligation in this case is the delivery of medicine to the patient NOT the sale of gift card. So, we cannot recognize the revenue straight way on the sale of gift card as at this point, the hospital has not satisfy its performance obligation.

So, what entry will hospital be passing at the time of selling gift card ? They will debit the cash by the amount of gift card and credit the contract liability by the same amount because the sale of gift card is just the prepayment for now for the future delivery of medicine.

Then after, when patient came to redeem the gift card, the hospital book the revenue and remove the related contract liability as at this time, the hospital satisfy the performance obligation of delivering medicine. They will debit the contract liability and credit the Revenue.

Let’s make a numerical example, let’s say SSBGM-CCA hospital sells gift card worth NPR.1000 to a visitor who came to visit the patient. At this time, SSBGM-CCA made the following entry:

DR. CASH 1000
CR. CONTRACT LIABILITY 1000

Later, after patient discharge, he/she purchase medicine by using the gift card. SSBGM-CCA will make the following entry:

DR. CONTRACT LIABILITY 1000
CR. REVENUE 1000

I hope you get some ideas in applying the IFRS 15. The best way to study financial reporting and strategic business reporting is to know the standards and apply it to real life examples as the ACCA examining team sets questions from real life scenarios in most occasions more specifically for SBR.

Extra tip for SBR : Specifically SBR Lead examiner is very brilliant in Double entry and he likes this approach very much so double entry presentation way is best way to impress him and his team and the markers. Nevertheless, any approach is acceptable.

Written by a member of CCA Management Team.

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