Revenue Recognition (IFRS 15)
The five-step model, advances, gift cards, bundles and revenue over time.
Revenue is the number everyone looks at first and the one that is easiest to report in the wrong period. IFRS 15 answers that with a single question asked five different ways: has the performance obligation been satisfied? The chapter starts with the core principle and the five-step model, then works through the situations where cash and performance come apart. Advances and unearned revenue, where the cash arrives first. Gift cards, where some of the cash will never be redeemed at all and breakage has to be recognised in step with actual redemptions. Principal versus agent, where a platform handling a full ticket price may only recognise its commission. And sales with a right of return, where some of what you just recorded is going to come back. It closes with the hardest and most examinable part: contracts bundling several performance obligations, allocating a single transaction price across them by stand-alone selling price, and recognising revenue over time using an input method rather than at a point in time.
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01The Core Principle & the Five-Step Model
revenue is recognised when the performance obligation is satisfied, not when cash arrives and not when the invoice goes out. The five-step model is that idea made operational.
02Cash Before Performance
Advances & Unearned Revenue: money received before the work is done is a liability, not revenue. It becomes revenue only as the obligation is satisfied, which is what the year-end adjustment measures.
03Gift Cards & Breakage
an advance that may never be redeemed. The portion never expected to be used is recognised in proportion to actual redemptions, not all at once at expiry.
04Principal vs Agent, and Sales with a Right of Return
an agent recognises only its commission, not the gross amount collected. And when goods can come back, part of the sale is a refund liability, not revenue.
05Bundles, Allocation & Revenue Over Time
one price, several performance obligations: allocate by relative stand-alone selling price, then decide whether each is satisfied at a point in time or over time.