MFRS 15 Case Study

The previous two main revenue recognition requirement Standards in MFRS 118 and MFRS 111 provided limited guidance, consequently, and could be difficult to apply to complex transactions. Therefore, MFRS 15 is effective for annual periods beginning on or after 1 January 2018 to solve the problem. There are many differences that can be identified between the new standard of MFRS 15 and the current standard of MFRS 118 in recognising revenue.
One of the differences is on how to recognize the revenue occur either record it separately based on the categories of models or the single model. In according to MFRS 118 and MFRS 111, the method that they record revenue is using the separate models for the purchasing of goods and services or construction
For example, a customer orders three sets of Zinger Box Meal from KFC through online system and have make a payment at the same time. However, the KFC only can record the revenue when the delivery has been arrived to the customer. Besides, MFRS 15 is recognizing the revenue based on the single model of performance obligations which are consists of satisfied over the time or satisfied at a point time in according to MFRS 15 para 32. In according to MFRS 15 para 35, it requires the entity can satisfy a performance obligation and recognises revenue over time if one of the criteria is met. The first criteria are the buyer receives and consumes the benefits of the product purchases by them. The second criteria are the seller try to improve and enhance the product’s assets and advantage and the last criteria is the seller does not create an assets or a benefits with an alternative use and the seller have right to payment for performance completed to date. As specified by MFRS 15 para 38, if the performance obligation is not satisfied over time, then the entity should satisfy the performance obligation at a
For example, a customer buys and owns a new car of Toyota, having 5 years warranty and free services charge and enjoying the benefits after the sales are actually transferred to them. Where the product are sold on credit terms, the revenue can be recognize along with a corresponding receivable which is subsequently settled upon the receipt of due amount from customer. However, MFRS 15 is focus on the control of the assets or product. The seller has a right to receive payment for the products sold and the customer has legal title to the product that they bought at the same time. The customer also entitled for physical possession of the products and assumed the significant risks and rewards of owning and accepted the product purchased. For example, a customer buys an equipment on 15 August 2017 and have make a full payment of RM 8,888 on that day while the equipment will be delivery after three days which on 18 August 2017. Therefore, the seller needs to recognize their revenue of equipment after the customer receives the equipment on 18 August