What is the second step in the IFRS 15 five-step model?

What is the second step in the IFRS 15 five-step model?

• A. Identify the performance obligations in the contract
• B. Determine the transaction price
• C. Allocate the transaction price
• D. Recognise revenue when performance obligations are satisfied

Answer: (A)

The step being tested is identifying the promises the contract makes to transfer goods or services to the customer. These promises, or performance obligations, are what the entity must fulfill to transfer control of each good or service. Distinct goods or services, or bundles that can be sold separately, create separate performance obligations; recognizing and measuring them correctly affects how much revenue is allocated to each obligation and when it is recognised. After you’ve identified the performance obligations, you determine the transaction price, allocate that price to the obligations, and then recognise revenue as each obligation is satisfied.

The step being tested is identifying the promises the contract makes to transfer goods or services to the customer. These promises, or performance obligations, are what the entity must fulfill to transfer control of each good or service. Distinct goods or services, or bundles that can be sold separately, create separate performance obligations; recognizing and measuring them correctly affects how much revenue is allocated to each obligation and when it is recognised. After you’ve identified the performance obligations, you determine the transaction price, allocate that price to the obligations, and then recognise revenue as each obligation is satisfied.