Governs when and how much revenue to recognise. Replaces IAS 11 & IAS 18 with a single, consistent 5-step model that applies to virtually every business selling goods or services.
The 5-step revenue recognition model:
Step 1 — Identify the contract
Written, oral or implied agreements that create enforceable rights and obligations between both parties.
Step 2 — Identify performance obligations
Break the contract into distinct promises. A product bundled with a warranty may be two separate obligations.
Step 3 — Determine the transaction price
Total amount expected to be received, including estimates for variable elements like bonuses or discounts.
Step 4 — Allocate price to each obligation
Split the price between obligations based on their standalone selling prices.
Step 5 — Recognise revenue when obligation is satisfied
At a point in time (goods delivery) or over time (services, construction contracts).
