Contract assets, contract liabilities and receivables

Learning objectives

• Determine whether a contract is presented as a contract asset, a contract liability or a receivable, according to the relationship between the entity's performance and the customer's payments.L1, L2, L3
• Calculate the net balance of a contract (cumulative revenue recognised less amounts invoiced or received).L2, L3
• Record an advance received, the invoicing and the reclassification of a contract asset to a receivable.L1, L2

Normative references

• IFRS 15 §105When either party has performed, the contract is presented in the statement of financial position as a contract asset or a contract liability, depending on the relationship between the entity's performance and the customer's payment; any unconditional right to consideration is presented separately as a receivable.
• IFRS 15 §106If the customer pays consideration, or an amount becomes due, before the entity transfers the good or service, the contract is presented as a contract liability at the earlier of the two dates: when the payment is made or when it becomes due. A contract liability is the entity's obligation to transfer to the customer goods or services for which it has received (or is entitled to) consideration.
• IFRS 15 §107If the entity performs before payment is made or due, it presents a contract asset, excluding any amounts presented as a receivable; a contract asset is a right conditioned on something other than the passage of time, and its impairment is measured, presented and disclosed in the same way as for a financial asset within the scope of IFRS 9.
• IFRS 15 §108A receivable is an unconditional right to consideration, i.e. a right for which only the passage of time is required before payment is due; it is accounted for in accordance with IFRS 9, any difference with the revenue on initial recognition being presented as an expense (for example, an impairment loss).
• IFRS 15 §109The standard does not prohibit the use of descriptions other than 'contract asset' and 'contract liability'; if an alternative description is used for a contract asset, the entity provides sufficient information for users to distinguish between receivables and contract assets.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

22 questions

• A contract asset is a right to consideration whose payment is due solely on the passage of time.L1
• At 31 December 20X1, Néroli has issued an invoice that is due for a service it will only perform in 20X2; the customer has not yet paid. Néroli presents a contract liability at that date.L2
• In which of the following situations does the entity hold a contract asset rather than a receivable?L2
• On 10 November 20X1, Pélagie delivers pumps to a customer, which obtains control of them, and issues an invoice of 30,000 payable within 60 days. No other condition is attached to payment. What item does Pélagie present for this right at 30 November 20X1?L2
• Mécanique Orvault is manufacturing a special press in its customer's plant, and the customer controls the construction as it progresses; the obligation is satisfied over time and progress is measured using costs. Transaction price: {contract_price}; total expected costs: {total_expected_costs}; costs incurred at 31 December 20X1: {costs_incurred} (already recognised as expenses). Orvault can only invoice after final acceptance of the press. Record the revenue entry at 31 December 20X1.L2
• Solaris Énergie is installing a solar power plant on land owned by a municipality, which controls the plant as it is built. Fixed price: {fixed_price}; total expected costs, unchanged: {expected_costs}. At the end of 20X2, cumulative costs reach {cumulative_costs}; revenue recognised in 20X1 was {prior_revenue}. The contract provides for a single invoice on commissioning. Record the revenue entry for 20X2 (progress measured using costs).L3
• On 15 January 20X1, Jarnac receives from a customer an advance payment of 20,000 for equipment that will only be delivered in March. On the date it receives the advance, Jarnac presents a contract liability.L1
• Kervian has completed the first phase of a project and recognised the related revenue. Under the contract, it can only invoice this phase after completing the second one. Kervian presents its right to consideration for the first phase as a receivable.L1
• Under IFRS 15, what is a receivable?L1
• Lormel sells two machines to a customer for 80,000; each machine is a separate performance obligation, to which a price of 40,000 is allocated. Payment only becomes due after delivery of the second machine. At 30 June 20X1, only the first machine has been delivered and Lormel has recognised revenue of 40,000. How does it present its right at that date?L2
• The chief financial officer of Montbrel is preparing the presentation of balances arising from contracts with customers. Which statements are correct?L2
• Mirabel is building a warehouse for a customer; the performance obligation is satisfied over time. At 31 December 20X1, cumulative revenue recognised since inception amounts to {cumulative_revenue}. The amounts invoiced to the customer, all of which have become due and are presented as receivables, total {cumulative_billings}. Mirabel has no other contract with this customer. Calculate the contract asset balance at 31 December 20X1.L2
• Norvane is developing bespoke software for a hospital under a performance obligation satisfied over time. The contract provides for milestone payments made in advance. At 31 December 20X2, Norvane has collected a total of {amounts_received} and no other amount is due; revenue recognised since the start of the contract reaches {revenue_to_date}. What net contract balance does Norvane present in its statement of financial position at that date?L3
• On 1 March 20X1, Orvault, a seminar organiser, collects {advance} paid in advance by a customer for a seminar to be held in June 20X1. Record the entry on 1 March 20X1.L1
• On 10 September 20X2, Pellevoisin, an office furniture manufacturer, accepts an order of {order_price} and receives on the same day a deposit of {deposit_rate}% of that amount. The furniture will be delivered, and control transferred to the customer, in November 20X2. Record the entry on 10 September 20X2.L2
• Quernel has installed at a customer's premises the first module of its security system and presents a contract asset of {contract_asset_amount} for it, as the contract only allows it to invoice this module after installing the second one. On 20 May 20X1, the second module is installed: Quernel issues the invoice, payable within 30 days, and no condition other than the passage of time affects this amount any longer. Record the entry for the first module on 20 May 20X1.L2
• The engineering firm Rivadour performs an engineering assignment satisfied over time. The contract makes the invoicing of each phase subject to the approval of the deliverables by the customer's engineer. At 30 September 20X2, Rivadour presents a contract asset of {contract_asset_balance} for phase 2, completed but not yet approved. On 5 October 20X2, the engineer approves the deliverables: the amount becomes billable and is only subject to a payment period. Record the entry on 5 October 20X2.L2
• Saulmont sells equipment and its installation for 50,000. Two performance obligations are identified: the equipment (allocated price 35,000), handed over to the customer on 31 March 20X1, and the installation (allocated price 15,000), planned for May. The customer paid 10,000 on signing; the balance of 40,000 will only be due on completion of the installation. At 31 March 20X1, after handing over the equipment, what balance does Saulmont present for this contract?L3
• Tarvel has entered into two separate contracts with the same customer, which do not meet the conditions to be combined. At 31 December 20X1, the maintenance contract shows a contract asset of 12,000; the training contract, paid in advance, shows a contract liability of 8,000. Case data: the presentation adopted by Tarvel does not offset balances arising from different contracts against each other. How does Tarvel present these balances in its statement of financial position?L3
• Ubrac delivers goods and recognises revenue of 50,000; its right to consideration is unconditional. Under IFRS 9 (case data, not tested here), the receivable is measured at 49,200 on initial recognition. How does Ubrac treat the difference of 800?L3
• On 20 April 20X2, the garden products wholesaler Brindal delivers {units} watering cans to a garden centre, invoiced at {unit_price} each and payable in 60 days; the garden centre may return the cans within 45 days in exchange for a credit. The cans were held in inventory at a unit cost of {unit_cost}. Brindal forecasts that {expected_returns} cans will be returned (an estimate consistent with the constraint on variable consideration according to the case data) and measures the asset for the right to recover the products at {return_asset}, an amount given by the case. Record the delivery.L3
• On its 20X1 sales, Velya allocated 9,600 to purchase vouchers providing a material right, valid until 30 June 20X2; this amount, paid by customers before the future goods are provided, is presented as a contract liability. The vouchers used gave rise to the recognition of the corresponding revenue when the items were delivered. On 30 June 20X2, all the remaining vouchers expire unused; 2,400 remains in the contract liability for them. How should this balance be treated?L3