1.
Objective of IFRS 15
IFRS 15 establishes principles for reporting useful information about the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers.
It replaces previous standards like IAS 18 (Revenue) and IAS 11 (Construction Contracts).
2. Core Principle
Revenue should be recognised in a way that reflects the transfer of goods or services to
customers in an amount that reflects the consideration the entity expects to receive in
exchange for those goods or services.
3. Five-Step Revenue Recognition Model
IFRS 15 uses a five-step approach to determine when and how much revenue to recognise:
Step 1: Identify the contract(s) with the customer
• A contract is an agreement that creates enforceable rights and obligations.
• Conditions for a contract:
1. Parties have approved it and are committed.
2. Rights and obligations can be identified.
3. Payment terms are identified.
4. It has commercial substance.
5. Collectability is probable.
Step 2: Identify the performance obligations
• Performance obligations = promises to transfer goods or services to the customer.
• Identify whether the contract has multiple distinct goods or services (bundled or
separate).
• A good/service is distinct if:
1. It can be used separately by the customer.
2. It is separately identifiable from other items in the contract.
Step 3: Determine the transaction price
• Transaction price = the amount of consideration the entity expects to receive.
• Consider adjustments for:
o Variable consideration (discounts, rebates, refunds)
o Significant financing components
o Non-cash consideration
o Consideration payable to customers
Step 4: Allocate the transaction price
• Allocate the transaction price to each performance obligation based on stand-alone
selling prices.
• If stand-alone price not observable, estimate using methods like adjusted market
assessment or expected cost plus margin.
Step 5: Recognise revenue when/as performance obligations are satisfied
• Revenue is recognised when control of goods or services is transferred.
• Two ways:
1. Over time – if one of these criteria is met:
▪ Customer simultaneously receives and consumes benefits.
▪ Entity creates or enhances an asset controlled by the customer.
▪ Asset has no alternative use and entity has right to payment.
2. At a point in time – when control passes (often delivery or handover).
4. Key Concepts
• Control vs. Risks and Rewards: Revenue is now based on control transfer, not just
risk/reward (IAS 18 focused on risk/reward).
• Contract costs: Incremental costs of obtaining a contract can be capitalised if
recoverable.
• Disclosure: IFRS 15 requires detailed notes, including:
o Disaggregated revenue by type
o Contract balances (receivables, contract assets, liabilities)
o Performance obligations and significant judgments
5. Examples
• Goods sold to a customer → recognise at delivery (point in time).
• Service over time → revenue recognised over service period (e.g., consultancy).
• Construction contract → recognise revenue over time if criteria are met (otherwise at
completion).
IFRS 15 essentially standardises revenue recognition across industries to provide a more
accurate picture of a company’s performance.