What are the five steps of the revenue recognition model under IFRS 15?

What are the five steps of the revenue recognition model under IFRS 15?

• A. Identify contract; identify performance obligations; determine transaction price; allocate price to performance obligations; recognize revenue when performance obligations are satisfied.
• B. Identify contract; determine to which date revenue should be recognized; recognize revenue when cash is collected; allocate price to performance obligations; disclose revenue.
• C. Identify performance obligations; recognize revenue; measure impairment; determine transaction price; allocate price to performance obligations.
• D. Identify contract; determine transaction price; recognize revenue; adjust for contingencies; disclose revenue.

Answer: (A)

IFRS 15 uses a five-step process to recognize revenue, focusing on when control transfers and how the transaction price is allocated across obligations. The steps flow in this order: first, identify the contract with the customer; next, identify all promised performance obligations in the contract; then determine the transaction price the entity expects to be entitled to; after that, allocate that price to each performance obligation based on relative standalone selling prices; finally, recognize revenue when (or as) the entity satisfies each performance obligation by transferring the promised good or service to the customer. This structure emphasizes recognizing revenue on transfer of control rather than on cash collection, which is why recognizing revenue only when cash is collected is not correct. It also separates the five-step process from other concepts like impairment or contingencies, which lie outside the core steps of recognizing revenue under IFRS 15. The option that matches the five steps in this exact order and uses revenue recognition when obligations are satisfied best captures the model.

IFRS 15 uses a five-step process to recognize revenue, focusing on when control transfers and how the transaction price is allocated across obligations. The steps flow in this order: first, identify the contract with the customer; next, identify all promised performance obligations in the contract; then determine the transaction price the entity expects to be entitled to; after that, allocate that price to each performance obligation based on relative standalone selling prices; finally, recognize revenue when (or as) the entity satisfies each performance obligation by transferring the promised good or service to the customer. This structure emphasizes recognizing revenue on transfer of control rather than on cash collection, which is why recognizing revenue only when cash is collected is not correct. It also separates the five-step process from other concepts like impairment or contingencies, which lie outside the core steps of recognizing revenue under IFRS 15. The option that matches the five steps in this exact order and uses revenue recognition when obligations are satisfied best captures the model.