Government Receivables IFRS 9 Significant Financing Component

[alyaly]

Hi,

When we make a sale to government entities, we receive no earlier than 6 months and it sometimes takes 1 to 2 years to collect cash on our sales made. How should I treat this under IFRS 9. Also do I need to discount the sale value under IFRS 9 ?

 

[Fidget]

By the sounds of it, it's IFRS 15 you need rather than IFRS 9. So you'll record revenue at the point in time a performance obligation has been completed (that's the new long-winded term for making a sale). In terms of discounting, you generally don't need to bother about it if payment is received within a year of a sale being made. If payment is received beyond 12 months then you need to take discounting into consideration, but then that'll depend upon the detail of the contract. So if the detail of the contract is payment received beyond 12 months of sale, then discounting needs considered, but if it's not supposed be that long then that's just credit control issues.

 

[alyaly]

I'm talking about the time after performance obligations are met. Once performance obligations are met we receive a submission number for tracking the progress of our cash and the cash is never received before 6 months and takes 1 to 2 years in some cases. And also we do not have control over this such as chasing normal receivables or factoring them etc.

Now again my question is
1. Is there a Significant Financing Component
2. Should I discount my receivable from government
What methodology should be used here ?

 

[Fidget]

Whether or not a SFC exists is for you to determine and you need to take all relevant circumstances into account in order to be able to make that judgement. The main questions you need answers to as a starting point are why does it take so long for the debt to be settled and is the selling price higher than it would be under standard payment terms because it takes so long to be paid? Look up IFRS 15 for guidance.