IFRS 15 adopted, certain disclosures from paras 110-129

Rakuten, Inc. – Annual report – 31 December 2017

Industry: financial, technology

  1. Accounting Policies (extract)

(14) Revenue

The Group Companies recognize revenue, excluding interest and dividend income and other such income from financial instruments recognized in accordance with IFRS 9 and insurance revenues recognized in accordance with IFRS 4, upon transfer of promised goods or services to customers in amounts that reflect the consideration to which the Group Companies expect to be entitled in exchange for those goods or services based on the following five step approach:

Step 1: Identify the contracts with customers

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

The incremental costs of obtaining contracts with customers and the costs incurred in fulfilling contracts with customers that are directly associated with the contract are recognized as an asset (hereinafter, “assets arising from contract costs”) if those costs are expected to be recoverable. The incremental costs of obtaining contracts are those costs that the Group Companies incur to obtain a contract with a customer that they would not have incurred if the contract had not been obtained. Assets arising from contract costs are amortized using the straight-line method over a period from four to ten years depending on the estimated contract periods.

  1. Revenue

(1) Breakdown of Revenue

1) Revenue Arising from Contracts with Customers and Other Sources

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Revenue arising from other sources includes interest and dividend income and other such income recognized in accordance with IFRS 9 and insurance revenues recognized in accordance with IFRS 4.

2) Relationship between Breakdown of Revenue and Segment Revenue

For the year ended December 31, 2016

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(Note) Amounts are after eliminations of intercompany transactions.

For the year ended December 31, 2017

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(Note) Amounts are after eliminations of intercompany transactions.

Interest and dividend income and other such income are recorded as revenue in accordance with IFRS 9, and proceeds from the insurance business are also recorded as revenue in accordance with IFRS 4. For the year ended December 31, 2016, Rakuten Card, Rakuten Bank and Rakuten Securities recorded revenue of ¥72,171 million, ¥44,225 million and ¥15,440 million, respectively, in accordance with IFRS 9. Rakuten Life Insurance recorded revenue of ¥31,324 million in accordance with IFRS 4. For the year ended December 31, 2017, revenues were ¥84,424 million, ¥46,190 million and ¥19,415 million, respectively. Rakuten Life Insurance recorded revenue of ¥31,560 million in accordance with IFRS 4.

The Group Companies together form a Global Innovation Company engaged in Internet Services and FinTech, operating in multiple businesses including its core EC business. Revenues arising from these businesses are recognized based on contracts with customers. There are no material revenues which are subject to variable consideration. In addition, the amount of promised consideration does not include significant financial elements.

Internet Services

With regard to the Internet Services segment, the Group Companies engage in EC businesses such as Rakuten Ichiba, Rakuten Travel, Ebates, Rakuten Mobile, Rakuten Books, Soukai Drug, Kenko.com, OverDrive, Rakuten Communications, Tohoku Rakuten Golden Eagles and a variety of other Internet businesses. The primary revenues in the Internet Services segment are described below. 

Rakuten Ichiba and Rakuten Travel

A fundamental characteristic of marketplace model EC services including Rakuten Ichiba and travel booking services such as Rakuten Travel is to provide EC platforms for trading to customers, and the Group Companies provide merchants and travel-related businesses with services including EC platform services, transaction related services, advertising related services to promote the expansion of sales through the Group Companies, and payment agency services related to settlements between merchants or travel-related businesses and consumers. The nature of the services and the related rights and obligations are stipulated in various agreements with customers. Performance obligations are identified based on whether services are distinct or not, and the pattern of transfer to the customer. Revenues from major performance obligations are recognized as described below.

With regard to EC platform services, the Group Companies have obligations to provide services for merchants to open and operate on our EC platform and related consulting services and other similar services for a contracted term. These services are provided over time, and so these performance obligations are satisfied as time passes. Accordingly, the revenue is recognized over the contracted term on a monthly basis based on the amount stipulated in the agreement for each type of shop. Furthermore, consideration for a transaction is received at the time of contract in the form of advance payment for the period of three months, six months or one year, prior to the satisfaction of performance obligations.

The Group Companies have obligations based on agreed terms to provide services to match merchants and travel-related businesses with Rakuten users, and to enable the resultant transactions to be processed appropriately. These performance obligations are satisfied when the individual transaction between merchants or travel-related businesses and Rakuten users is completed. Revenues are recognized at the point of satisfaction of these performance obligations, based on the gross amount of merchandise sales (monthly sales of merchants and travel-related businesses) of completed transactions multiplied by the specified ratio stipulated separately for each service, plan, or amount of gross merchandise sales. The related payments are receivable approximately within three months of the completion of the transaction.

With regard to advertising-related services, the Group Companies have obligations to provide fixed-term advertisements to customers. The advertising related services are provided by displaying the advertisement over the contracted term, and the progress of providing the service is measured based on the passage of time. Therefore, performance obligations are satisfied over the contract term, and revenues are recognized evenly over the contract term according to the amount stipulated in the agreement for each type of advertisement. Advertising fees are, in principle, paid by the end of the second subsequent month after the month that includes the advertising commencement date.

With regard to payment agency services, based on credit card settlement agreements, the Group Companies have obligations to provide payment agency services between merchants and travel-related businesses and users of the Group Companies. These services are to process data for authorization, settlement and cancellation of credit card transactions. Commission revenues arising from these transactions are primarily recognized based on the amount stipulated in the agreement when customers use their credit cards, because the performance obligations are satisfied at that point. Commissions are received within one month and a half after the invoice date set out for each payment category, following the satisfaction of performance obligations.

Rakuten Mobile

Rakuten Mobile is an MVNO (Mobile Virtual Network Operator) that uses the networks of mobile telecommunications carriers. As such, it is mainly engaged in the provision of voice calling and data transmission services (hereinafter “telephone and telecommunications services”) and sales of mobile handsets. For telephone and telecommunications services, maintaining utilizable telephone and telecommunications circuits for users at all times and providing the services using such circuits based on contracts are identified as performance obligations. For the handset sales, a delivery is identified as a performance obligation. When multiple services are provided in a single package, the consideration received from users is divided by the stand-alone selling price and allocated to each performance obligation. The performance obligation for maintaining utilizable telephone and telecommunications circuits is satisfied over the period, and the performance obligation for providing the telephone and telecommunications services is satisfied when the circuits are utilized. Therefore, revenues arising from providing the circuits are recognized over the contract term. For provision of telephone and telecommunications services, subscriber fees according to the actual usage of the circuits are recognized on a monthly basis. For the handset sales, the performance obligation is satisfied when a mobile handset is delivered to the user and the line is opened, and thus related revenues are recognized at that point. Payments for both performance obligations are received approximately within two months from the billing date.

Ebates

Ebates provides various services such as services for promoting Ebates members’ purchase at the websites of the retailers (customers) through offering cash back to the Ebates members (hereinafter “cash back service”), web advertising and targeting mail services for individual consumers. As for its core service, cash back service, Ebates is contractually obligated to promote Ebates members’ purchase at the retailers’ websites. Thus, such performance obligations are considered to be satisfied at the point of purchase by Ebates members. Upon confirmation of the purchase by an Ebates member, an amount calculated by multiplying the purchase amount by a certain rate is recorded as commission revenue, and cash back expenses for the Ebates member are recorded simultaneously. Revenue and expenses arising from the provision of this service are recorded on a gross basis, as Ebates has the right to enforce discretionary control of the customers and Ebates members over the transactions including pricing. Payments of fees are received approximately within three months from the end of the month in which the order is completed and performance obligations are satisfied. 

Rakuten Books, Soukai Drug and Kenko.com

In the Internet Services segment, when the Group Companies provide goods mainly for Rakuten users of Internet shopping sites, such as Rakuten Books, Soukai Drug and Kenko.com, the Group Companies are the principal in the sales contracts. In these direct selling services, revenue is recognized when goods are delivered to the customer. In addition, payments are received approximately within two months after the delivery of goods when performance obligations are satisfied. For Japanese book sales through Rakuten Books, revenues are recognized on a net basis after deducting costs of sales, because the role of the Group Companies in these transactions has the nature of an agent given the resale price maintenance system in Japan. 

OverDrive

With regard to OverDrive, the Group Companies provide contents distribution services, including e-books and audio books for libraries and educational institutions. The Group Companies have obligations based on agreements with libraries, which are the main customers, to distribute contents and provide services relating to hosting and customer support. In terms of the distribution of contents, performance obligations are considered to be satisfied at the point of purchase of the contents by the libraries, and thus the revenue is recognized at that point. Payments relating to such performance obligations are received approximately within two months of the invoice month. Performance obligations with respect to services relating to hosting and customer support are satisfied over the contract term as time passes, and the revenue is recognized evenly over the contract term in which such performance obligations are satisfied. Furthermore, consideration for a transaction is received each year in the form of advance payment prior to the satisfaction of performance obligations.

Rakuten Communications

With regard to Rakuten Communications, the Group Companies provide telephone related services to subscribers such as telephone relay services, Internet connection services and other services. For telephone related services, maintaining utilizable telephone circuits at all times and providing telephone communication service using the circuits based on the respective contract are identified as performance obligations. The performance obligation for maintaining utilizable telephone circuits is satisfied over the period, and the performance obligation for providing telephone communication service is satisfied when the telephone circuits are utilized. Therefore, revenues arising from providing telephone circuits are recognized evenly over the contract term, while for the provision of telephone communication service, subscriber fees according to the actual usage of telephone circuits are recognized on monthly basis. For Internet connection service, providing users with Internet access over the contract terms is identified as a performance obligation, and therefore, Internet connection revenues are recognized for the previous month. Payments of the amounts recorded as revenues for the previous month are received in accordance with the settlement method selected by the user within a short period of time, after the satisfaction of performance obligations subject to the payment terms and conditions set out separately by the credit card accounting, etc.

Tohoku Rakuten Golden Eagles

With regard to Tohoku Rakuten Golden Eagles, the Group Companies engage in the sales of tickets and merchandise for Tohoku Rakuten Golden Eagles, and advertising services. For ticket sales, revenues are recognized when each baseball game is held because the performance obligation is considered to be satisfied at that point. Payments for tickets are received in accordance with the settlement method selected by the purchaser after the application for reservation is completed, subject to the payment terms and conditions set out separately by the credit card companies, etc. For sales of goods, revenues are recognized when goods are delivered because the performance obligation is satisfied at the point of delivery. Payments for goods are received at the time of delivery when the performance obligation is satisfied.

For advertising services, the performance obligations are satisfied over the contract term, and revenues are recognized evenly over the contracted term according to the amount stipulated in the agreement for each type of advertisement. Advertising fees are paid within four months, in principle, after the commencement of the contract period.

FinTech

With regard to the FinTech segment, the Group Companies engage in financial services businesses such as Rakuten Card, Rakuten Bank, Rakuten Securities and Rakuten Life Insurance, and recognize the primary revenues as follows.

Rakuten Card

With regard to Rakuten Card, the Group Companies engage in the credit card business, and receive interchange fees for settlement services between credit card users and member shops as well as, revolving payment commissions, installment commissions, and commissions arising from cash advances. With regard to interchange fees, the performance obligation, which is the provision settlement services, is satisfied at the time of the sales data transfer from a member shop to Rakuten Card Co., Ltd. as a result of a credit card purchase. Therefore, commission revenues which are at fixed rates of the settlement amounts are recognized at that point in time. In addition, basic points worth 1% of the settlement amounts are granted to the card members, and the expenses associated with the granting of these points are deducted from the interchange fees. As Rakuten Card Co., Ltd. collects credit card payments from the card members once a month, in principle, on a predetermined date, the payments are in substance received approximately within two months after the satisfaction of the performance obligations. For revolving payment commissions, installment commissions and commissions for cash advances with a finance element, the respective commissions, which are at fixed rates of the revolving balance, the number of payment installments or the amount of the cash advance are recognized as revenue over the period when the interest accrues in accordance with IFRS 9.

Rakuten Bank

With regard to Rakuten Bank, the Group Companies provide a wide range of services including Internet banking (deposits, loans and foreign exchange) and other services. With regard to loans, the Group Companies handle loans such as personal loans, “Rakuten Super Loans,” and housing loans, “Rakuten Bank home loans (flexible interest rate),” and earn interest income thereon. Interest income is also earned from investing activities such as interest on securities. This income, such as loan interest and interest earned on securities is recognized over the period in accordance with IFRS 9. With regard to foreign exchange, commission revenue is recognized when the foreign exchange transactions are executed because the performance obligation is satisfied at the point of processing the transaction.

Rakuten Securities

With regard to Rakuten Securities, the Group Companies engage in financial instruments transaction services and other associated services. Sources of revenue include commissions arising from these transactions, net trading gains, and interest, etc. There is a wide range of financial instruments transactions, including domestic stock transactions, foreign stock transactions, and sales of investments, and the commission structure for each transaction differs. For brokerage transactions, margin transactions and sales of investments, performance obligations are satisfied when trades are concluded on the trade date or other appropriate date, therefore revenues arising from brokerage transactions are recognized at that point in time. Commissions from spot transactions of shares are received within three business days in principle after the satisfaction of the performance obligations, while commissions from margin transactions and future transactions are received approximately within the period from six months to one year during which open contracts are settled. The Group Companies record revenue and operating expenses measured at fair value on foreign exchange margin transactions, and income received on open contracts of domestic margin transactions, in accordance with IFRS 9.

Rakuten Life Insurance

With regard to Rakuten Life Insurance, the Group Companies engage in the life insurance business, and recognize fund management revenues which are primarily insurance premiums and interest on securities. These insurance revenues arise from protection-based life insurance contracts for individuals, which are the primary products for Rakuten Insurance. Revenue from insurance premiums paid by policy holders calculated by using the rate stipulated in the respective contract is recognized in accordance with IFRS 4. Also, interest income is recognized as revenue over the period in accordance with IFRS 9.

(2) Accounts arising from contracts

Breakdown of the balance of contracts of the Group Companies is as follows:

For the year ended December 31, 2016

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(Note) This represents accounts receivable arising from the use of credit cards by customers based on installment contracts, etc., which are recorded under “Loans for credit card business” in the Consolidated Statements of Financial Position. Such accounts receivable include commissions received by the Group Companies.

Of the revenues recognized in the previous fiscal year, ¥16,305 million was included in the balance of contract liabilities as of January 1, 2016. In addition, the amount of revenues recognized during the previous fiscal year from the performance obligations satisfied (or partially satisfied) in the past periods was immaterial.

For the year ended December 31, 2017

rak16

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(Note) This represents accounts receivable arising from the use of credit cards by customers based on installment contracts, etc., which are recorded under “Loans for credit card business” in the Consolidated Statements of Financial Position. Such accounts receivable include commissions received by the Group Companies.

Of the revenues recognized in the current fiscal year, ¥15,969 million was included in the balance of contract liabilities as of January 1, 2017. In addition, the amount of revenues recognized during the current fiscal year from the performance obligations satisfied (or partially satisfied) in the past periods was immaterial.

(3) Transaction Price Allocated to the Remaining Performance Obligations

The Group Companies retain no significant transactions for which an individual estimated contract period exceeds one year. In addition, consideration arising from contracts with customers do not comprise any significant amount that is not included in transaction price. 

(4) Assets Recognized from the Costs to Obtain or Fulfill Contracts with Customers

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The Group Companies recognize the incremental costs of obtaining contracts with customers and the costs incurred in fulfilling contracts with customers that are directly associated with the contract as an asset if those costs are expected to be recoverable, and record them in “Other assets” in the Consolidated Statements of Financial Position. Incremental costs of obtaining contracts are those costs that the Group Companies incur to obtain a contract with a customer that would not have been incurred if the contract had not been obtained.

Incremental costs of obtaining contracts recognized as assets by the Group Companies are mainly the initial costs incurred related to the new memberships in the acquisition of customers. Costs incurred in fulfilling contracts with customers mainly comprise costs for issuing Rakuten Cards. Such costs arise from the granting of Rakuten Super Points to new Rakuten Card holders and would not have been incurred if the contracts had not been obtained. These costs are recognized as an asset to the extent they are considered recoverable based on the estimated active card member ratio. The related asset is amortized evenly over ten years based on the estimated contract terms, during which performance obligations are satisfied through the provision of settlement services following the members’ use of their Rakuten cards.

Also, the Group Companies assess collectability of assets arising from contract costs on recognition and at the end of each quarterly period. In making this assessment, the Group Companies consider whether the carrying amounts of such assets exceed the balance of the consideration which the Group Companies expect to be entitled to from the interchange for the relevant credit card related services over the estimated period of the contracts with the card members, less any unrecognized costs directly related to the provision of such services. Such accounting estimates and assumptions could have a significant impact on the amount of assets arising from contract costs recorded through the recognition of impairment losses should circumstances presumed change. Therefore, the Group Companies regard that these accounting estimates and assumptions are significant.

For the years ended December 31, 2016 and 2017, amortization associated with the assets arising from contract costs was ¥6,870 million and ¥9,299 million, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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