Objective, core principle and the five steps

Learning objectives

• Explain the core principle of IFRS 15: recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange.L1
• Identify and sequence the five steps of the model: identify the contract, identify the performance obligations, determine the transaction price, allocate that price, and recognise revenue when (or as) each obligation is satisfied.L1, L2
• Explain the portfolio practical expedient: apply the standard to a portfolio of similar contracts when the effect is not reasonably expected to differ materially from applying it to the individual contracts.L2

Normative references

• IFRS 15 §1The standard establishes the principles that an entity applies to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
• IFRS 15 §2To meet the objective, the entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.
• IFRS 15 §4The standard specifies the accounting for an individual contract; however, as a practical expedient, the entity may apply it to a portfolio of contracts (or performance obligations) with similar characteristics if it reasonably expects that the effects on the financial statements would not differ materially from applying it to the individual contracts. The estimates and assumptions used then reflect the size and composition of the portfolio.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

12 questions

• Under the core principle of IFRS 15, an entity recognises revenue when it collects the price paid by its customer.L1
• IFRS 15 aims to provide users of financial statements with useful information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.L1
• Which statement best reflects the core principle of IFRS 15?L1
• In what order does the five-step teaching approach apply the core principle of IFRS 15?L1
• Which of the following are steps of the five-step approach that implements the core principle of IFRS 15?L1
• As a practical expedient, an entity may apply IFRS 15 to a portfolio of contracts with similar characteristics if it reasonably expects that the effect on its financial statements will not differ materially from applying it contract by contract.L2
• Lumira, a manufacturer of smoke detectors, enters into thousands of standard contracts with installers every year. It wants to account for these contracts as a portfolio. Under what condition does IFRS 15 permit this?L2
• When an entity applies IFRS 15 to a portfolio of contracts, the estimates and assumptions it uses reflect the size and composition of that portfolio.L2
• Which of the following statements are consistent with the core principle of IFRS 15?L2
• On 20 December 20X1, Fervane receives full payment from its customer for a machine that it will deliver, and of which the customer will obtain control, on 15 January 20X2. Fervane's reporting date is 31 December. When does it recognise the revenue from this sale?L2
• Under IFRS 15, the amount of revenue recognised for a period may differ from the amount collected from customers during that same period.L1
• Brisol, a telecommunications operator, is considering applying IFRS 15 on a portfolio basis to its mobile subscriptions. Which statements are correct?L2