IFRS 15

Revenue from Contracts with Customers

1Objective and scope

IFRS 15 establishes the principles an entity applies to report useful information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The core principle: revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services.

2Key definitions

3The five-step model

• Step 1: Identify the contract with a customer - it must have commercial substance, be approved by the parties, identify each party's rights and payment terms, and collection must be probable
• Step 2: Identify the performance obligations - each distinct good or service (or bundle) promised in the contract
• Step 3: Determine the transaction price - including estimates of variable consideration (constrained to the extent it is highly probable a significant reversal will not occur), any significant financing component, non-cash consideration, and consideration payable to the customer
• Step 4: Allocate the transaction price to each performance obligation, based on the relative stand-alone selling prices of the goods or services underlying each
• Step 5: Recognise revenue when (or as) each performance obligation is satisfied

A performance obligation is satisfied OVER TIME if any one of three criteria is met: the customer simultaneously receives and consumes the benefits as the entity performs; the entity's performance creates or enhances an asset the customer controls as it is created; or the asset created has no alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. Otherwise, the performance obligation is satisfied AT A POINT IN TIME, determined by indicators of the transfer of control such as a present right to payment, legal title, physical possession, the transfer of significant risks and rewards of ownership, and customer acceptance.

4Presentation and disclosure

• Disaggregation of revenue into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors
• Opening and closing balances of contract assets, contract liabilities and receivables, and how they changed during the period
• Information about performance obligations, including when they are typically satisfied and significant payment terms
• Significant judgements made in applying the standard, including the methods used to determine the transaction price and to allocate it

5Examinable focus