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

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

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

Answer: (A)

The key idea here is sequencing: after you’ve identified the contract and the performance obligations, you must pin down how much consideration the entity expects to be entitled to in exchange for transferring goods or services. That amount is the transaction price, and it is the third step in IFRS 15. Once you have the transaction price, you allocate it to the identified performance obligations and then recognise revenue as each obligation is satisfied. The other steps come earlier or later in the sequence: identifying the contract with the customer is the first step, allocating the transaction price is the fourth, and revenue is recognised when the performance obligations are satisfied, which is the fifth step.

The key idea here is sequencing: after you’ve identified the contract and the performance obligations, you must pin down how much consideration the entity expects to be entitled to in exchange for transferring goods or services. That amount is the transaction price, and it is the third step in IFRS 15.

Once you have the transaction price, you allocate it to the identified performance obligations and then recognise revenue as each obligation is satisfied. The other steps come earlier or later in the sequence: identifying the contract with the customer is the first step, allocating the transaction price is the fourth, and revenue is recognised when the performance obligations are satisfied, which is the fifth step.