IFRS 15
Revenue from contracts with customers
Revenue. Income arising in the course of an entity’s ordinary activities.
(normal trading & operating activities)”
Core principle
IFRS 15 is based on a core principle that requires a supplier to recognize revenue:
in a manner that depicts the transfer of goods or services to customers;
at an amount that reflects the consideration the supplier expects to be entitled to in exchange for those
goods or services.
Revenue Recognition Model
To recognize revenue the following five steps should be applied:
Identify the contract(s) with the customer (recognition)
Identify the performance obligations(PO) in the
contract (recognition)
Determine the transaction price (Measurement)
Allocate transaction price to performance obligation
(measurement)
Recognise revenue when PO satisfied
(recogntion)
over period,(services)
at point of time(goods)
STRATEGIC BUSINESS REPORTING (SBR) | By Zubair Saleem
, Example.5 Step Model
Example: applying the IFRS five-step model
On 1 January 20X4, Angelo enters into a twelve-month ‘pay monthly’ contract for a mobile phone. The
contract is with Tele South, and terms of the plan are
(a) Angelo receives a free handset on 1 January 20X4
(b) Angelo pays a monthly fee of $200, which includes unlimited free minutes.
Angelo is billed on the last day of the month Customers may purchase the same handset from Tele South
for $500 without the payment plan. They may also enter into the payment plan without the handset, in
which case the plan costs them $175 per month. The company’s year-end is 31 July 20X4.
Required
Show how Tele South should recognize revenue from this plan in accordance with IFRS 15
Revenue from contracts with customers.
Solution
Application of the five-step process to TeleSouth
(i) Identify the contract with a customer. This is clear. TeleSouth has a twelve-month contract
with Angelo.
(ii) Identify the separate performance obligations in the contract. In this case there are two
distinct performance obligations:
(1) The obligation to deliver a handset
(2) The obligation to provide network services for twelve months
(The obligation to deliver a handset would not be a distinct performance obligation if the
handset could not be sold separately, but it is in this case because the handsets are sold
separately.)
(iii) Determine the transaction price. This is straightforward: it is $2,400, that is 12 months ×
the monthly fee of $200.
(iv) Allocate the transaction price to the separate performance obligations in the contract. The
transaction price is allocated to each separate performance obligation in proportion to the
standalone selling price at contract inception of each performance obligation, that is the
stand-alone price of the handset ($500 and the stand-alone price of the network services
($175 × 12 = $2,100.00):
STRATEGIC BUSINESS REPORTING (SBR) | By Zubair Saleem
Revenue from contracts with customers
Revenue. Income arising in the course of an entity’s ordinary activities.
(normal trading & operating activities)”
Core principle
IFRS 15 is based on a core principle that requires a supplier to recognize revenue:
in a manner that depicts the transfer of goods or services to customers;
at an amount that reflects the consideration the supplier expects to be entitled to in exchange for those
goods or services.
Revenue Recognition Model
To recognize revenue the following five steps should be applied:
Identify the contract(s) with the customer (recognition)
Identify the performance obligations(PO) in the
contract (recognition)
Determine the transaction price (Measurement)
Allocate transaction price to performance obligation
(measurement)
Recognise revenue when PO satisfied
(recogntion)
over period,(services)
at point of time(goods)
STRATEGIC BUSINESS REPORTING (SBR) | By Zubair Saleem
, Example.5 Step Model
Example: applying the IFRS five-step model
On 1 January 20X4, Angelo enters into a twelve-month ‘pay monthly’ contract for a mobile phone. The
contract is with Tele South, and terms of the plan are
(a) Angelo receives a free handset on 1 January 20X4
(b) Angelo pays a monthly fee of $200, which includes unlimited free minutes.
Angelo is billed on the last day of the month Customers may purchase the same handset from Tele South
for $500 without the payment plan. They may also enter into the payment plan without the handset, in
which case the plan costs them $175 per month. The company’s year-end is 31 July 20X4.
Required
Show how Tele South should recognize revenue from this plan in accordance with IFRS 15
Revenue from contracts with customers.
Solution
Application of the five-step process to TeleSouth
(i) Identify the contract with a customer. This is clear. TeleSouth has a twelve-month contract
with Angelo.
(ii) Identify the separate performance obligations in the contract. In this case there are two
distinct performance obligations:
(1) The obligation to deliver a handset
(2) The obligation to provide network services for twelve months
(The obligation to deliver a handset would not be a distinct performance obligation if the
handset could not be sold separately, but it is in this case because the handsets are sold
separately.)
(iii) Determine the transaction price. This is straightforward: it is $2,400, that is 12 months ×
the monthly fee of $200.
(iv) Allocate the transaction price to the separate performance obligations in the contract. The
transaction price is allocated to each separate performance obligation in proportion to the
standalone selling price at contract inception of each performance obligation, that is the
stand-alone price of the handset ($500 and the stand-alone price of the network services
($175 × 12 = $2,100.00):
STRATEGIC BUSINESS REPORTING (SBR) | By Zubair Saleem
