FAF3
Syllabus F. Preparing Basic Financial Statements F2. Statements of profit or loss and other comprehensive income

F2b. Revenue Recognition - IFRS 15 - introduction 4 / 7

Syllabus F2b)

b) Understand how accounting concepts apply to revenue and expenses.

Revenue Recognition - IFRS 15

When & how much to Recognise Revenue?

Here you need to go through the 5 step process…

  1. Identify the contract(s) with a customer

  2. Identify the performance obligations in the contract

  3. Determine the transaction price

  4. Allocate the transaction price to the performance obligations in the contract

  5. Recognise revenue when (or as) the entity satisfies a performance obligation

Before we do that though, let’s get some key definitions out of the way..

Key definitions

  • Contract

    An agreement between two or more parties that creates enforceable rights and obligations.

  • Income

    Increases in economic benefits during the accounting period in the form of increasing assets or decreasing liabilities

  • Performance obligation

    A promise in a contract to transfer to the customer either:

    - a good or service that is distinct; or 

    - a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

  • Revenue

    Income arising in the course of an entity’s ordinary activities.

  • Transaction price

    The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.