Subject Revenue Recognition Memo - SaaS Software Services under IFRS 15
Date: [Insert Date]
To: [Recipient's Name] From[Your Name] CC: [CC Names, if applicable] Subject: Accounting Treatment for Revenue Recognition of SaaS Software Services
This memo outlines the application of IFRS 15, "Revenue from Contracts with Customers," for a SaaS software service with an annual fee of $9,000, inclusive of $1,000 for installation and training.
- Step 1: Identify the Contract with the Customer (IFRS 15.5)
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Analyze the agreement to confirm its existence, terms, and conditions.
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Step 2: Identify Performance Obligations (IFRS 15.55)
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The contract includes two distinct performance obligations: the SaaS access and the installation/training services.
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Step 3: Determine Transaction Price (IFRS 15.105)
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Allocate the total transaction price to each performance obligation based on standalone selling prices (SSPs), considering discounts, variable considerations, and noncash considerations.
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Step 4: Allocate the Transaction Price (IFRS 15.100)
- Allocate the price proportionally to the standalone selling prices of each obligation.
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Assuming no separate SSPs are available, allocate the price based on the relative standalone value.
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Step 5: Recognize Revenue (IFRS 15.51)
- For the SaaS access, recognize revenue over time as the customer simultaneously receives and consumes the benefits.
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For the installation/training services, recognize revenue at a point in time when the service is completed.
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Step 6Consider Variable Consideration (IFRS 15.119)
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There is no mention of variable consideration in this scenario, so we assume none applies.
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Step 7: Non-Cash Considerations (IFRS 15.115)
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Not applicable since the payment is in cash.
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Step 8: Contract Modifications (IFRS 15.109)
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No modifications are mentioned in this case.
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Step 9: Disclosures (IFRS 15.127-132)
- Provide relevant disclosures about the nature, amount, timing, and uncertainty of revenue.
Please note that the allocation of the transaction price between the SaaS access and installation/training services requires judgment. If the standalone selling prices are not readily available, management's best estimate should be used.
[Your Name] [Your Title/Position]
