IFRS 15: Steps to Recognize Revenue

 

 

IFRS 15 provides a 5-step model for revenue recognition in business transaction.

And the five essential steps are listed in order as follows:

 

Step 1: Establish a Contract with the Customer

 

Step 2: Identify the Performance Obligations in the Contract: Performance obligation is any good or service that contract promises to transfer to the customer.

 

Step 3: Determine the Transaction Price: The transaction price is the amount of consideration than an entity expects to be entitled in exchange for transferring promised goods or services to a customer.

 

Step 4: Allocate the Transaction Price to the Performance Obligations

 

Step 5 Recognize Revenue when (or as) the Entity Satisfies a Performance Obligation: A performance obligation is satisfied (and revenue is recognized) when a promised good or service is transferred to a customer.

These are the 5-step model for revenue recognition in a nutshell according to International Financial Reporting Standard.

 

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