Revenue definition

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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General model in Insurance contracts measurement

The general model of measurement of insurance contracts in IFRS 17 is based on estimates of the fulfilment cash flows and contractual service margin.

Portfolio of contracts or performance obligations

Portfolio of contracts or performance obligations is a practical solution to revenue recognition in IFRS 15. Although IFRS 15 specifies the accounting for an individual contract with a customer, the Standard allows as a practical expedient that it can be applied to a portfolio of contracts or performance obligations with similar characteristics provided that it is reasonably expected that the effects on the financial statements of applying a portfolio approach will not differ materially from applying IFRS 15 to the individual contracts (or performance obligations) within that portfolio. When accounting for a portfolio, estimates and assumptions that reflect the size and composition of the portfolio should be used. [IFRS 15 4]

Many entities manage a very large number … Read more

Insurance contract

Insurance contract - A contract under which one party (the issuer) accepts significant insurance risk from another party by agreeing to compensate damage