The perfect 5 step-by-step revenue model

The perfect 5 step-by-step revenue model -IFRS 15 Revenue from Contracts with Customers was issued on 28 May 2014. It supersedes:

  • IAS 18 Revenue; The perfect 5 step-by-step revenue model
  • IAS 11 Construction contracts; The perfect 5 step-by-step revenue model
  • IFRIC 13 Customer Loyalty Programmes; The perfect 5 step-by-step revenue model
  • IFRIC 15 Agreements for the Construction of Real Estate; The perfect 5 step-by-step revenue model
  • IFRIC 18 Transfers of Assets from Customers; and The perfect 5 step-by-step revenue model
  • SIC-31 Revenue – Barter Transactions Involving Advertising Services. The perfect 5 step-by-step revenue model

IFRS 15 will improve comparability of reported revenue over a range of industries, companies and geographical areas globally.

IFRS 15’s objective is to establish principles that … Read more

Contract Modifications under IFRS 15

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Contract Modifications under IFRS 15 – Just two practical examples, to better understand all kind of things for IFRS 15.

On 1 January 20X1, Wireless Company enters into a two-year contract with a customer for a 2-gigabyte (GB) data plan with unlimited talk and text for CU60/month and a subsidised handset for which the customer pays CU200. Contract Modifications under IFRS 15

The handset has a stand-alone selling price of CU600. Contract Modifications under IFRS 15

For purposes of this illustration, the time value of money has not been considered, the stand-alone selling price of the wireless plan is assumed to be the same as the contractual price and the effect of the constraint on variable consideration … Read more

Step 2 Identify the performance obligations in the contract

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Step 2 Identify the performance obligations in the contract is the second step in IFRS 15 Revenue from contracts with customers. IFRS 15 The revenue recognition standard provides a single comprehensive standard that applies to nearly all industries and has changed revenue recognition quite significant. Step 2 Identify the performance obligations in the contract

IFRS 15 introduced a five step process for recognising revenue, as follows:Step 2 Identify the performance obligations in the contract

    1. Identify the contract with the customer
    2. Identify the performance obligations in the contract
    3. Determine the transaction price for the contract
    4. Allocate the transaction price to each specific performance obligation
    5. Recognise the revenue when the entity satisfies each performance obligation

Step two, identifying the performance obligations in the contract, is … Read more

Determining when promises are performance obligations

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In determining when promises are performance obligations the assessment has to be made whether

  1. the performance obligations consist of a series of distinct goods and/or services that are substantially the same and have the same pattern of transfer, OR Determining when promises are performance obligations
  2. a series of non-distinct goods and/or services that are not substantially the same and not have the same pattern of transfer.

This is important in the recognition of revenue over time or at a point in time. Determining when promises are performance obligations

Separate performance obligations

After identifying the promised goods or services within a contract, an entity determines which of those goods or services will be treated as separate performance … Read more

Performance obligation

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Performance obligation – [IFRS 15 Appendix A – Defined terms]

Such an obligation is a promise in a contract with a customer to transfer to the customer either:

  1. a good or service (or a bundle of goods or services) that is distinct; or
  2. a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

Context Performance obligation Performance obligation Performance obligation

For revenue to be recognized, the following conditions must be satisfied:

  1. Risks and rewards have been transferred from the seller to the buyer.
  2. The seller does not have control over the goods sold.
  3. The collection of payment from goods or services is reasonably assured.
  4. The amount of revenue can
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