IFRS 15 provides a single principles-based model for recognizing revenue from contracts with customers.
Revenue is recognized when control of goods/services transfers to the customer (not necessarily when risks and rewards transfer).
✅ The 5-Step Revenue Model
STEP 1 – Identify the Contract
A contract exists when:
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Parties approve the agreement
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Rights and payment terms can be identified
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Contract has commercial substance
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Collection of consideration is probable
Example
Company A signs a contract with a customer to deliver 100 TVs for $20,000.
Payment due within 30 days.
→ Contract meets IFRS 15 criteria.
STEP 2 – Identify Performance Obligations (POs)
A performance obligation is a distinct good or service.
A good/service is distinct if:
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Customer can benefit from it on its own
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It is separately identifiable in the contract
Example
A contract includes:
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A phone handset
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12-month mobile data plan
→ Two performance obligations.
STEP 3 – Determine Transaction Price
Consider:
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Fixed amounts
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Variable consideration (discounts, rebates, bonuses, penalties)
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Significant financing component
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Non-cash consideration
Example
Contract price = $10,000
Includes a possible $1,000 bonus if delivered on time.
Entity estimates 60% probability → expected bonus = $600
Transaction price = $10,600
STEP 4 – Allocate Transaction Price to POs
Allocate based on stand-alone selling prices (SSP) of each PO.
Example
Contract price: $1,200
SSP of:
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Phone = $600
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Data plan = $900
Total SSP = $1,500
Allocation:
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Phone = 600/1500 × 1,200 = $480
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Data plan = 900/1500 × 1,200 = $720
STEP 5 – Recognize Revenue When PO is Satisfied
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Point in time → e.g., delivering a product
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Over time → e.g., services provided monthly
Example
Phone revenue → At delivery
Data plan → Monthly over 12 months
Journal entry at delivery:
Monthly service revenue:
⭐ Full Practical Examples
1. Sale of Goods (Point-in-Time)
Company sells 1,000 bags at $5 each.
Delivery occurs on 31 March.
Payment received 30 days later.
→ Revenue recognized when control passes (31 March).
2. Construction Service (Over Time)
Contract price = $1,000,000
Construction takes 2 years.
Progress measured by cost basis:
Year 1 costs = $300,000
Total estimated cost = $600,000 → 50% complete
Revenue Year 1 = 50% × 1,000,000 = $500,000
Entry:
3. Contract with Variable Consideration (Bonus)
Contract price $100,000 + $20,000 bonus if completed in 10 days.
Entity estimates 70% chance of achieving bonus.
Expected value = 20,000 × 70% = 14,000
Transaction price = 114,000
4. Significant Financing Component
Product price if paid now = $95,000
Customer chooses to pay in 2 years = $110,000
Implied interest = $15,000
Revenue = 95,000 now
Interest income over 2 years = 15,000
5. Non-Refundable Upfront Fee (Gym Membership)
Customer pays $100 upfront + $20 per month.
Upfront fee does NOT transfer a good/service → spread over contract.
If contract = 10 months:
Revenue = 100/10 = $10 per month
Plus monthly fee $20 → total $30 revenue per month.
6. Warranties
Assurance warranty
Only ensures product works → not a PO
Account for as a provision (IAS 37).
Service-type warranty
Separate service → performance obligation
7. Principal vs Agent
Principal → recognizes gross revenue
Agent → recognizes net fee
Example
Platform sells product for $100.
Keeps $10 commission, supplier receives $90.
→ Agent:
Revenue = $10 only.
8. Contract Modifications
Contract price = $500,000 for 5 machines ($100k each).
Customer adds 1 machine at SSP = $120,000.
→ Distinct and priced at SSP → treat as separate contract.
If not distinct, adjust original contract using cumulative catch-up.