IFRS 15, quantified disclosure of effects of future adoption and new revenue accounting policies

AB Electrolux (publ) – Annual report – 31 December 2017

Industry: manufacturing

Note 1 Accounting principles (extract)

New or amended accounting standards to be applied after 2017 (extract)

IFRS 15 Revenue from Contracts with Customers

IFRS 15 replaces IAS 18 and IAS 11 and establishes a new mindset for revenue recognition. Effective date is January 1, 2018. The standard was endorsed by the EU on September 22, 2016. Electrolux adopts IFRS 15 with full retrospective application with use of the standard’s ‘practical expedients’ when applicable. The impact on the financial statements from the use of the practical expedients has been assessed as not material.

The new standard is based on the principle that revenue is recognized when control of a good or service transfers to a customer, i.e. under IFRS 15 there is a focus on the ‘transfer of control’ instead of ‘transfer of risks and rewards’ under current standards.

IFRS 15 introduces a five-step model to be applied to all contracts with customers in order to establish when and how to recognize revenue.

The core principle in the five step model is:

  1. Identify contracts with customers.
  2. Identify the separate performance obligations.
  3. Determine the transaction price of the contract.
  4. Allocate the transaction price to each of the separate performance obligations.
  5. Recognize the revenue as each performance obligation is satisfied.

Transition to IFRS 15

The transition to IFRS 15 will be done by applying the retrospective method according to IFRS 15 transition guidance. Transitioning to IFRS 15 with a retrospective application means that IFRS 15 will be applied as if it has always been applied. Therefore, numbers for 2017 will be restated as applicable, and periods prior to January 1, 2017 will be restated through adjustments to the opening balances of 2017. The opening balance net adjustment to equity is SEK –126m. Details on the transition effects are presented below.

Extensive work has been performed during the past few years in order to implement IFRS 15, interpreting it and what it means to Electrolux, identifying relevant accounting areas that may be in scope of a change.

The effects of applying the new standard have been assessed and the following key accounting areas have been identified as materially affected by the transition to IFRS 15.

  1. Timing effects related to dispatch and delivery of finished products (under contracts not completed at the transition date) have been identified in business areas Major Appliances Europe, Middle East and Africa and Home Care & SDA, based on a reassessment of the point in time when control is transferred to the customer. These timing effects do not affect the full-year numbers but there are noticeable effects on the quarterly numbers, affecting net sales and operating income, as well as key ratios such as operating margin and earnings per share in the quarters. The most noticable effects are negative to Q1 and positive to Q4. Due to these quarterly effects, this key accounting area will be included as an adjustment under the transition to IFRS 15 and each quarter 2017 will be restated. The net effect as per year-end 2016 was SEK –8m after tax and will be recognized as an opening balance adjustment to 2017. This adjustment will affect Inventory, Prepaid income, Deferred tax and Equity (Retained earnings). The quarterly restatement effects from the change described above are presented through restated quarterly and full-year numbers for 2017 in the tables below and overleaf.
  2. Identification of contracts including a possible agent or principal relationship where a reassessment of the contracts, based on a change in focus from ‘risk and reward’ to ‘control’, has led to the conclusion that Electrolux under a limited number of contracts is acting as an agent rather than a principal. The change in accounting leads to a net accounting method instead of a gross accounting method, resulting in reductions of Net sales and Cost of Goods Sold for business area Major Appliances Asia/Pacific of SEK 1,289m for the full year 2017. This change has no effect on operating result but causes an increase in operating margin. The effects from this change are presented through restated quarterly and full-year numbers for 2017 in the table “Quarterly effects from IFRS 15 restatement” overleaf. This change has no effect on the opening balance 2017.

Apart from the key accounting areas described above there are other non-material balance sheet effects from the transition to IFRS 15 with a total net opening balance adjustment to equity 2017 of SEK –118m. These changes cause no other restatement effects.

The table below shows the total IFRS 15 restatement effect on the opening and closing balances 2017 per affected balance sheet line item. The originally reported amount for December 2016 and December 2017 respectively are shown in columns ‘Reported’ and the restatement adjustments are shown in columns ‘Adj.’ The adjusted opening balance for 2017 is shown in column ‘Adjusted OB 2017’ and the restated closing balance for 2017 is shown in column ‘Restated Dec. 2017’. The restated numbers for December 2017 will be used as comparative amounts from 2018.


The table below shows the total quarterly and full-year restatement effects on 2017 net sales and operating income for the affected Business areas and total Group. The originally reported amounts for each quarter 2017 are shown in column ‘Rep.’, the restatement adjustment in column ‘Adj.’ and the restated amount in column ‘Rest.’. The restated numbers will be used as comparative amounts from 2018.


The table below shows the total quarterly and full-year restatement effects on affected items in the consolidated balance sheet 2017. The originally reported amounts are shown in column ‘Rep.’, the restatement adjustment in column ‘Adj.’ and the restated amount in column ‘Rest.’. The restated numbers will be used as comparative amounts from 2018.


Accounting principles applicable from January 1, 2018 (extract)

IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments are applied by Electrolux from January 1, 2018. The new standards’ general impact as well as transition effects are described in section ‘New or amended accounting standards to be applied after 2017’ on pages 96–98. The accounting principles sections for Revenue recognition, based on IFRS 15, and Financial Instruments, based on IFRS 9, are presented below.

Revenue recognition

Electrolux manufactures and sells appliances mainly in the wholesale market to customers being retailers. Electrolux products include refrigerators, dishwashers, washing machines, cookers, vacuum cleaners, air conditioners and small domestic appliances. Electrolux offer complete solutions for both consumers and professionals.

Sale of finished products including spare parts and accessories

Sales of products are revenue recognized at a point in time i.e when control of the products has transferred, being when the products are delivered to the customer. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or there is objective evidence that all criteria for acceptance have been satisfied. In practice, transfer of control and thus revenue recognition normally depends on the contractual incoterm.

Transaction price — Volume discounts

The products are often sold with volume discounts based on aggregate sales over a specific time period, normally 3–12 months. Revenue from these sales is recognized based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for the discounts using either the expected value method or an assessment of the most likely amount. Revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur. A contract liability is recognized for expected volume discounts payable to customers in relation to sales made until the end of the reporting period. The estimated volume discount is revised at each reporting date.

Receivables, contract assets and contract liabilities

A receivable is recognized when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. If the consideration is conditional to additional performance, a contract asset is recorded.

If Electrolux receive prepayments from customer a contract liability is recorded.

Sale of goods and services combined

When contracts include both goods and services the sales value is split into the separate performance obligations as applicable and revenue is recognized when each of the separate performance obligations is satisfied. In general, types of performance obligations that may occur are products, spare parts, installation, service and support and education.

Sale of services in a separate contract

Electrolux recognizes revenue from services related to installation of products, repairs or maintenance service when control is transferred being over the time the service is provided. For service contracts covering a longer period revenue is recognized on a linear basis over the contract period.

Sale of licenses in a separate contract

Electrolux is licensing trade names to other companies. The license provides the licensee a right to access intellectual property throughout the license period and revenue is recognized over time. The most common license type for Electrolux is sales based royalty where the revenue is recognized when the sales occur.

Payments to customers

Agreements can be made with customers to compensate for various services or actions the customer takes. This relates to e.g. agreements under which Electrolux agrees to compensate the customer for e.g. marketing activities undertaken by the customer. The main rule is that if the payment is related to a distinct service or product it shall be accounted for as a purchase of that service or product. If not it shall be deducted from the related revenue stream. In practice, if the contract doesn’t include any requirement of follow up from Electrolux side and/or reporting back from the customer that the service is performed, the payment shall be accounted for as a reduction of revenue.

Customer incentives

Customer incentives include promotional activities as e.g. coupons, gift cards, free products and loyalty/cash points. Customer incentives are additional performance obligations providing the customer with a material right, i.e. the customer is purchasing a product or service in the original purchase and the right to a free or discounted product or service in the future. The customer is effectively paying in advance for future products or services. Revenue is therefore allocated to two performance obligations, the originally purchased product and the product bought in the future (payment in advance). A liability is recognized for the rebate until it’s used or expires unused.

Free products unrelated to Electrolux products are recognized as marketing/sales cost.

Regarding free products related to Electrolux products, revenue is allocated to both the ordinary product sold and the free product.


The most common warranty for Electrolux is to replace a faulty product under legal and common practice warranty terms. In those cases warranty is recognized as a provision. Electrolux also sells extended warranty where the revenue is recognized during the warranty period, which usually starts after the legal warranty period. Sometimes warranty offered is including a service part and if it is difficult to separate the warranty from the service the two are bundled together and revenue is recognized over the warranty period.

Sales with a right of return

A right of return is not a separate performance obligation, but it affects the transaction price for the transferred goods. Returns rights are commonly granted in the retail and consumer industry.

Regarding a right of return which follows from legislation, statutory requirements, business practice or is stipulated in the contract with the customer, revenue is not recognized for goods expected to be returned. Instead, a liability is recognized for expected refunds to customers. An asset is also recorded for the expected returned item. The estimated amount of returned goods in each sale with a right of return, is based on a probability-weighted approach or most likely outcome, whichever is most predictive. The estimate is revised on each reporting date.

Principal versus agent

I some countries Electrolux acts as an agent, i.e. Electrolux arranges for goods or services to be provided by an external supplier to the customer. Electrolux records as revenue the commission fee earned for facilitating the transfer of goods or service or the net amount of consideration that the company retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party.

Freight charges

In most cases freight is included in the price of the product sold and revenue is recognized at the same time as for the product.

Consignment stock or sell-through arrangement

For some customers Electrolux keeps the inventory of products in the warehouse of the customer or in the customer’s outlet. Transfer of control of the products are done when the customer lifts the product from the warehouse or when the product is sold to the end consumer. Electrolux recognize revenue when the control has been transferred or when there is a legal right of forcing a sales transaction.