- Use Case 1
- Use Case 2
On 24/01/2017, a customer enters into a mobile service contract with a 24-month contract term bundle for an iPhone-7. He receives the iPhone-7 128GB for an amount of $2,415 upon contract inception. The customer pays $128 on a monthly basis for services. If the handset was sold separately (sold for the RRP), the company would have charged $3,199. The SSP for service is $128.
In the above cases, the customer receives the handset with services included in the contract. Revenue needs to be allocated between the handset and services. In addition, services and revenue need to be recognized at each POB level as explained in IFRS 15/ ASC 606.
|POB||Contract price||SSP||Revenue allocation|
Revenue for each POB needs to be allocated and recognized as above as and when performance obligation is satisfied. In this case, the device performance obligation is satisfied when delivery to the customer is complete.
How Hamilton helps
Telecom is the industry most impacted by new reporting standard. Complexities arise when there are many combinations of contract modifications with customers. Using Hamilton, they will have the flexibility to do prospective as well as retrospective contract modifications depending upon the business necessity.
Time-value of Money for Telecom
Customer enters into a zerolution contract with a 24-month contract term bundle for an iPhone-7. Upon contract inception, he receives the iPhone-7 128GB for an amount of RM138 per month.
The customer pays RM128 on a monthly basis for services. If the handset was sold separately (sold for the RRP), the company would have charged RM3,199.
Summary of use case is as below:
- Initial payment is 0
- Monthly payment for device is 138 $
- Monthly payment for service is 128$
- SSP for service is 3072$
- SSP for device 3199$
IFRS 15 talks about time-value of money as below:
The transaction price (IFRS 15: Step 3) is also adjusted for the effects of the time-value of money if the contract includes a significant financing component and for any consideration payable to the customer.
It is used to calculate the interest income or expenses by taking the effective interest rate applicable to the customer and recognized as P&L over the subscriber's contract period in compliance with IFRS 15.
Total value for which customer is going to make the payment – 138*24 = 3312
PV value of total device payments = 3051.26
Total service payments = 3072
Total contract value is 6123,26
Allocation of revenue against each POB based on their SSP is as below:
Device is 3123.63
Service is 2999.62
How Hamilton helps
Unlike other solutions, Hamilton has an inbuilt time-value of money feature and customers don't need to go for further enhancements. Also, Hamilton supports many detailed and summary disclosure reports as well as management reports fulfilling management needs.