Philips 2014 Annual Report Download - page 117

Group nancial statements 12.9
Annual Report 2014 117
IFRS 15 Revenue from Contracts with Customers
IFRS 15 species how and when revenue is recognized
as well as describes more informative and relevant
disclosures. The Standard supersedes IAS 18 Revenue,
IAS 11 Construction Contracts and a number of revenue-
related interpretations.
The new Standard provides a single, principles based
ve-step model to be applied to all contracts with
customers. Furthermore, it provides new guidance on
whether revenue should be recognized at a point in
time or over time. The standard also introduces new
guidance on costs of fullling and obtaining a contract,
specifying the circumstances in which such costs
should be capitalized. Costs that do not meet the
criteria must be expensed when incurred.
IFRS 15 must be applied for periods beginning on or
after January 1, 2017. The Company is currently
assessing the impact of the new Standard.
Specic choices within IFRS
Sometimes IFRS allows alternative accounting
treatments for measurement and/or disclosure. The
most important of these alternative treatments are
mentioned below.
Tangible and intangible xed assets
Under IFRS, an entity shall choose either the cost model
or the revaluation model as its accounting for tangible
and intangible xed assets. In this respect, items of
property, plant and equipment are measured at cost
less accumulated depreciation and accumulated
impairment losses. The useful lives and residual values
are evaluated annually. Furthermore, the Company
chose to apply the cost model meaning that costs
relating to product development, the development and
purchase of software for both internal use and software
intended to be sold and other intangible assets are
capitalized and subsequently amortized over the
estimated useful life.
Employee benet accounting
IFRS does not specify how an entity should present its
service costs related to pensions and net interest on the
net dened benet liability (asset) in the Statement of
income. With regards to these elements, the Company
presents service costs in Income from operations and
the net interest expenses related to dened benet
plans in Financial expense.
Cash ow statements
Under IFRS, an entity shall report cash ows from
operating activities using either the direct method
(whereby major classes of gross cash receipts and gross
cash payments are disclosed) or the indirect method
(whereby prot or loss is adjusted for the eects of
transactions of a non-cash nature, any deferrals or
accruals of past or future operating cash receipts or
payments, and items of income or expense associated
with investing or nancing cash ows). In this respect,
the Company chose to prepare the cash ow
statements using the indirect method.
Furthermore, interest cash flows are presented in cash flows
from operating activities rather than financing or investing
cash flows, because they enter into the determination of
profit or loss. The Company choose to present dividends paid
to shareholders of Koninklijke Philips N.V. as a component
of cash flows from financing activities, rather than to present
such dividends as operating cash flows which is an allowed
alternative under IFRS.
Policies that are more critical in nature
Revenue recognition
Revenue from the sale of goods in the course of the
ordinary activities is measured at the fair value of the
consideration received or receivable, net of returns,
trade discounts and volume rebates. Revenue for sale
of goods is recognized when the signicant risks and
rewards of ownership have been transferred to the
buyer, recovery of the consideration is probable, the
associated costs and possible return of the goods can
be estimated reliably, there is no continuing
involvement with goods, and the amount of revenue
can be measured reliably. If it is probable that discounts
will be granted and the amount can be measured
reliably, then the discount is recognized as a reduction
of revenue as the sales are recognized.
Transfer of risks and rewards varies depending on the
individual terms of the contract of sale. For consumer-type
products in the sectors Lighting and Consumer Lifestyle
these criteria are met at the time the product is shipped
and delivered to the customer and title and risk have
passed to the customer (depending on the delivery
conditions) and acceptance of the product has been
obtained. Examples of delivery conditions are ‘Free on
Board point of delivery’ and ‘Costs, Insurance Paid point
of delivery’, where the point of delivery may be the
shipping warehouse or any other point of destination as
agreed in the contract with the customer and where title
and risk for the goods pass to the customer.
Revenues of transactions that have separately
identiable components are recognized based on their
relative fair values. These transactions mainly occur in
the Healthcare sector and include arrangements that
require subsequent installation and training activities in
order to become operable for the customer. However,
since payment for the equipment is contingent upon
the completion of the installation process, revenue
recognition is generally deferred until the installation
has been completed and the product is ready to be
used by the customer in the way contractually agreed.
Revenues are recorded net of sales taxes, customer
discounts, rebates and similar charges. For products for
which a right of return exists during a dened period,
revenue recognition is determined based on the
historical pattern of actual returns, or in cases where