Home IFRS 15 Ep 01 — Identifying the Contract
Episode 01 · 7 min Step 1 · Identify the contract

TerraGold & Mrs. Owusu: Do They Have a Contract?

// An off-plan home sale. GH₵800,000. The first test before any revenue can hit the books.

← Back to course
GH₵ 1 · Contract 2 · Obligations 3 · Price 4 · Allocate 5 · Recognise EPISODE 01 · IFRS 15 · STEP 1 Identifying a Contract An off-plan home · GH₵800,000 · the five-test door before any revenue. PRESS PLAY ▶ SCENE · TERRAGOLD HQ · EAST LEGON TERRAGOLD DEVELOPMENTS · EST. 1998 KOJO MENSAH Junior Accountant · Newly hired MRS. AMA OWUSU Home buyer · Off-plan · 24-mo handover THE CONTRACT · EAST LEGON · DAY 01 TOTAL CONTRACT VALUE GH₵ 800,000 DEPOSIT TODAY · GH₵ 240,000 (30%) Balance over 18 months · mortgage-backed ⚠ COMPLEX OFF-PLAN DEAL House not built. 24 months to handover. Multiple promises. Mortgage-financed. Many moving parts — does IFRS 15 still apply? STOP · BEFORE ANY REVENUE Before TerraGold recognises a single cedi of revenue — does it have a contract under IFRS 15? FIVE TESTS · ALL MUST PASS IFRS 15.9 · A CONTRACT EXISTS WHEN ALL FIVE ARE TRUE Five gates between you and revenue recognition. TEST 01 Approval & Commitment Both parties have approved the contract and intend to perform their obligations. WRITTEN · ORAL · CUSTOMARY OK TEST 02 Rights are Identifiable Each party's rights to the goods or services to be transferred can be identified. WHO GETS WHAT? TEST 03 ₵ Payment Terms Identifiable The price and the timing of payment are clear enough to be measured. HOW MUCH? WHEN? TEST 04 Commercial Substance The contract changes future cash flows of both parties — it's a real economic deal. REAL · NOT A SHAM TEST 05 Probable Collection It's probable the seller will collect the amount owed in exchange for the goods/services. WILL WE GET PAID? "All five must hold. Miss any one and IFRS 15 says: not yet a contract." TEST 01 · APPROVAL & COMMITMENT "The parties have approved the contract" — in writing, orally, or by their customary practice — — and are committed to performing their respective obligations. APPLY TO TERRAGOLD & MRS. OWUSU Both parties signed the Sale & Purchase Agreement at TerraGold's office. Mrs. Owusu transferred GH₵240,000 deposit. TerraGold issued an official receipt. Both sides are committed to performing their obligations — IFRS 15.9(a). ✓ TEST 01 — PASSED Signed paperwork plus actual money moving = unambiguous approval and commitment. TEST 02 · RIGHTS ARE IDENTIFIABLE "Each party's rights regarding the goods or services to be transferred can be identified." TERRAGOLD OWES (DELIVERS) Serviced plot of land · transferred Completed 3-bedroom home built Kitchen fittings & built-in appliances 2-year defects warranty 1 year of common-area maintenance All five named in the SPA — clear scope. MRS. OWUSU RECEIVES (RIGHTS) Title to the serviced plot Right to receive the finished home Right to fittings & appliances Right to defect remediation (2 yrs) Right to maintained common areas Each obligation maps to a buyer right. ✓ TEST 02 — PASSED TEST 03 · PAYMENT TERMS ARE IDENTIFIABLE "The payment terms for the goods or services to be transferred can be identified." — IFRS 15.9(c) HOW MUCH? GH₵ 800,000 FIXED · TOTAL CONTRACT Single number stated in the SPA. No variability. WHEN? 30% TODAY 70% 18 MONTHS DEPOSIT + INSTALMENTS 240,000 deposit. Then monthly until handover. HOW? BANK + MORTGAGE STANBIC · APPROVED Payment method, terms and schedule all on paper. ✓ TEST 03 — PASSED TESTS 04 & 05 · THE LAST TWO HURDLES TEST 04 · COMMERCIAL SUBSTANCE "The contract changes the risk, timing, or amount of future cash flows." APPLIED TO TERRAGOLD & MRS. OWUSU TerraGold receives GH₵800k over 24 months TerraGold commits ~GH₵600k in build costs Mrs. Owusu pays GH₵800k cash + mortgage Mrs. Owusu receives a real titled home ✓ TEST 04 — PASSED Real cash flows on both sides. TEST 05 · PROBABLE COLLECTION "It is probable the entity will collect the consideration it is entitled to." APPLIED TO TERRAGOLD & MRS. OWUSU 30% deposit already in TerraGold's bank. Stanbic mortgage approved · income verified. Bank-guaranteed instalments · low risk. If Mrs. Owusu had only verbal income claims, this test could fail. ✓ TEST 05 — PASSED VERDICT · 5 / 5 TESTS PASSED CONTRACT EXISTS UNDER IFRS 15 A complex deal can pass — when all five tests hold. APPROVAL RIGHTS PAYMENT SUBSTANCE COLLECTION Now TerraGold can move on to identifying the performance obligations — that's Episode 2. TAKE THE QUIZ → Pass the quiz to earn your CPD certificate.
NARRATOR · KOJO Welcome to Episode 1 of IFRS 15. Press the play button below to begin.
01 / 10