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

No alternative use enforceable payment right

Last update

No alternative use enforceable payment right for work to date is the last phase in the satisfaction of performance obligations in IFRS 15 Revenue recognition. This is part of 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 Revenue recognition over time is often referred to as the ‘Percentage of completion‘ method under the (superseded) IAS 11 Construction contracts.

Revenue recognition at a point in time

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 … Read more

Satisfaction of performance obligations

Last update

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 … Read more

Legally enforceable contract

Last update

Legally enforceable contract – A contract, under the broadest possible definition, is a legally enforceable promise. Contracts are classified in many different ways. For example, a contract may be unilateral (a promise by one party to another) or bi- or multilateral (a set of complementary promises made by and between more than one party).

A contract may be oral or written (although an oral contract is difficult to prove, and some types of contracts must be written). It may be express (a promise made explicitly) or implied (a promise concluded upon based on one’s (normal) business conduct). A type of obligation similar to a contract may even be created, under certain circumstances, by a court in the … Read more

Recognise revenue when or as the entity satisfies each performance obligation

Last update

Recognise revenue when or as the entity satisfies each performance obligation – 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.


Under IFRS 15, an entity recognises revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer. A good or service is considered to be transferred when the customer obtains control. Control of the good or service refers to the ability to direct its use and to obtain substantially all of its remaining benefits (i.e., right to cash inflows or reduction of cash outflows generated by the Read more

Revenue recognition over time

Last update

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

Read more

Performance obligations satisfied over time

Last update

Performance obligations satisfied over time – 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 is satisfied. A vendor satisfies a performance obligation … Read more