IFRS 15 Revenue from Contracts with Customers

Five steps of revenue recognition

• Identify the contract(s) with a customer.
• Identify the performance obligations — promises to transfer distinct goods or services to the customer.
• Determine the transaction price — the consideration the entity expects to be entitled to; any variable part must be estimated.
• Allocate the transaction price to the performance obligations in proportion to stand-alone selling prices.
• Recognise revenue when a performance obligation is satisfied — when the customer obtains control of the good or service: at a point in time or over time.

Where IFRS 15 departs from familiar accounting

• bundled contracts (equipment + installation + service) — revenue is split by performance obligation;
• discounts, bonuses and late-delivery penalties — variable consideration that reduces the transaction price;
• long-term contracts and construction — revenue is recognised over time as the work is performed;
• prepayments — not revenue until control has transferred.

Example

A company sells equipment for UZS 120 million with a year of free servicing. Stand-alone selling prices: equipment — 110 million, service — 22 million (total 132 million). The transaction price is allocated: to the equipment 120 × 110/132 = 100 million — recognised on delivery; to the service 20 million — evenly over the year.