IFRS 15 – Do Hotel Operators have an obligation to perform?

IFRS 15 (Revenue from Contracts with Customers) applies to an annual reporting period beginning on or after 1 January 2018. In my opinion, there are two key considerations to make when hotel operators when drafting or updating contracts with customers.

The first is to identify the performance obligations in the contract, as these would determine when revenue can be recognised. Management contracts typically are for a bundle of services and may often involve the supply of goods to be used on the hotel premises. It is advisable to identify a series of goods or services that are transferred to the customer, as such management contracts typically last several years.

The second key consideration is to allocate transaction price to the performance obligations in the contracts. This is relatively straight forward for goods, since the costs are typically based on a cost plus or mark-up model, though I am sure, several institutions would like to see value-based pricing.

How this would be implemented will be interesting to note, especially when the entity recognises revenue over time. The standard effectively sticks to the basis of the risks and rewards related to ownership. In conclusion, the five-step framework provides a rather more pragmatic approach to recognising revenue.