Control of an asset

Revenue definition

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Revenue definition

Revenue is defined in IFRS 15 as: ‘Income arising in the course of an entity’s ordinary activities‘.

IFRS 15 establishes a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services.

The application of the core principle in IFRS 15 is carried out in five steps:

revenue definition

The five-step model is applied to individual contracts. However, as a practical expedient, IFRS 15 permits an entity to apply the model to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects would not differ materially from applying it to individual contracts.

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IFRS 15 the new revenue model – The best read

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A closer look at IFRS 15 the new revenue model – IFRS 15 establishes principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. A closer look at IFRS 15 the new revenue model The revenue model applies to all contracts with customers except leases, insurance contracts, financial instruments, guarantees and certain non-monetary exchanges. The sale of non-monetary financial assets, such as property, plant and equipment, real estate or intangible assets will also be subject to some of the requirements of IFRS 15. A contract with a customer may be partially within the scope of IFRS … Read more

1st Best Read and Learn – Performance obligations satisfied over time

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Performance obligations satisfied over time and  Performance obligations satisfied at a point in time are the two choices in IFRS 15. IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here. Performance obligations satisfied over time This section is part of step 5 Recognise revenue as or when each performance obligation … Read more

Revenue recognition over time

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Revenue recognition over time is the defined term. As a result, revenue recognition at a point of time is the valid recognition principle when the definition of revenue recognition over time is not met.  A vendor satisfies a performance obligation and recognises revenue over time when one of the following three criteria is met: Criterion Example 1. The customer simultaneously receives and consumes the benefits provided by the contractor’s performance as the contractor performs. Routine or recurring services like cleaning services 2. The contractor’s performance creates or enhances an asset that the customer controls as the asset is created or enhances Building an asset on a customer’s site 3. The contractor’s performance does not create an asset with an alternative … Read more

Extra disclosures IFRS 15 contracts

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Extra disclosures IFRS 15 contracts – This part relates to a complete explanation of IFRS 15 Revenue from contracts with customers in respect of Engineering & Construction contracts, see Revenue from Engineering & Construction contracts. Contract balances The disclosures related to contract balances are extensive and intended to enable users to understand the relationship between the revenue recognised and changes in overall balances of total contract assets and liabilities in a particular reporting period. Extra disclosures IFRS 15 contracts Contract assets: An entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance), and … Read more

Satisfaction of performance obligations

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Satisfaction of performance obligations – An entity recognises revenue only when it satisfies a performance obligation by transferring control of a promised good or service to the customer. Control of an asset refers to the ability of the customer to direct the use of and obtain substantially all of the cash inflows, or the reduction of cash outflows, generated by the goods or services. Control also means the ability to prevent other entities from directing the use of, and receiving the benefit from, a good or service. Satisfaction of performance obligations The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time. If an entity does not … Read more

Revenue recognition at a point in time

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Revenue recognition at a point in time is included in IFRS 15 Revenue from Contracts with Customers (contents page is here), that introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here. Revenue recognition at a point in time Performance obligations satisfied at a point in time as the default option We can say that performance obligation satisfied at a point in … Read more

IFRS 15 Revenue recognition

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IFRS 15 Revenue recognition is a primary and fundamental subject in the recognition of revenue. There are two ways of recognising revenue, revenue recognition over time and revenue recognition at a point in time. Revenue recognition over time is often referred to as the ‘Percentage of completion‘ method under the (superseded) IAS 11 Construction contracts. The general principle is the revenue is recognised at a point in time (and as such it is the most common type of sales transaction at least in volume, just think of: a retailer sells a candy bar for cash in the shopping mall). As a result there are three criterion (see below ability, direct the use and obtain benefits from) that have to be … Read more