5 Steps to Recognize Revenue under IFRS 15: A Comprehensive Guide

Hello classmates and Dr. K, The five steps that entities take to recognize revenue under IFRS 15 are: Step 1: Identify the Contract with the Customer The sellers' revenue recognition must follow the terms of the contract. The probability of a selling entity likely collecting consideration in agreement with the contract is considered an identifiable contract. Step 2: Identify the Separate Performance Obligations in the Contract. A performance obligation is an agreement between two parties regarding the transfer of goods or services from a seller to a buyer. To determine the separate performance obligations of a contract, the evaluation of the goods and, or services is necessary (Doupnik et al., 2020). Step 3: Determine the Transaction Price. The Transaction Price is the value expected in exchange for the goods and, or services in agreement within the contract. Step 4: Allocate the Transaction Price to Separate Performance Obligations. Transaction prices to separate performance obligations must be allocated "in proportion to the stand-alone selling price of each element of the contract (Doupnik et al., 2020, p.173.)". The transaction price allocation for group or multi-sales must have a reasonable approach to separate performance obligations (Doupnik et al., 2020). Step 5: Recognize Revenue Upon the execution of each performance obligation, revenue recognition of allocations should be recognized. The execution of performance obligations occurs when the customer has received the goods or services agreed upon within the contract and should recognize revenue at this point (Doupnik et al., 2020).