MFRS 15 establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Applying MFRS 15, an entity recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

MFRS 15 introduces a 5-step model for revenue recognition:

1. Identify the contract with a customer.
2. Identify performance obligations within the contract.
3. Determine the transaction price.
4. Allocate the transaction price to performance obligations.
5. Recognize revenue when the entity satisfies a performance obligation.

Impact on Financial Statements

• Revenue recognition is based on control transfer, not just risks and rewards.
• Contracts with bundled goods/services require separation for proper revenue allocation.
• Entities must provide more qualitative and quantitative disclosures.

MFRS 16 is to report information that (a) faithfully represents lease transactions and (b) provides a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. To meet that objective, a lessee should recognize assets and liabilities arising from a lease.

MFRS 16 introduces a single lessee accounting model, requiring lessees to:

• • Recognize assets and liabilities for all leases exceeding 12 months, unless the underlying asset is of low value.
• Record a right-of-use asset, representing the economic benefit of the leased asset.
• Recognize a lease liability, capturing future lease payment obligations.

Impact on Financial Statements

• Eliminates the distinction between finance leases and operating leases.
• Balance Sheets – Lease liabilities and right-of-use assets are recorded.
• EBITDA Calculations – Operating lease expenses are replaced by depreciation and interest expenses.
• Financial Ratios – Metrics like leverage and return on assets may shift.