Revenue Recognition: the 5-Step Model (IFRS 15 Example)
Worked Example · Intermediate Accounting
Revenue Recognition: the 5-Step Model (IFRS 15)
Under IFRS 15 you recognize revenue with a five-step model: identify the contract, identify the performance obligations, determine the transaction price, allocate that price, and recognize revenue as each obligation is satisfied. It’s on every Intermediate I midterm — and it runs on IFRS, so US “when cash is received” rules will cost you marks.
The five steps
IFRS 15 model
- Identify the contract with the customer
- Identify the separate performance obligations
- Determine the transaction price
- Allocate the price to each performance obligation
- Recognize revenue as each obligation is satisfied (over time or at a point in time)
Worked example
A software firm sells a 1-year licence bundled with support for $12,000. The licence alone sells for $9,000; support alone for $3,000 — so there are two performance obligations. Allocate by standalone selling price:
| Obligation | Allocated price | When recognized |
|---|---|---|
| Software licence | $9,000 | Point in time — at delivery |
| Support (12 months) | $3,000 | Over time — $250 / month |
| Total | $12,000 |
Allocating a bundle in your own problem set? A tutor can walk your own numbers — book a session.
The mistake that costs marks
Recognizing the whole $12,000 up front. Support is satisfied over time, so booking it immediately overstates revenue and understates the contract liability — a classic Step 5 error.
Frequently asked questions
Is revenue recognized when cash is received?
No. Under IFRS 15 revenue is recognized as performance obligations are satisfied, which can be before or after cash changes hands.
What’s the difference between “over time” and “point in time”?
Over time means control transfers gradually (an ongoing service); point in time means control transfers at one moment (delivering a product).
Does ASPE use the 5-step model?
ASPE 3400 uses an earnings-process approach (risks and rewards), not the IFRS 15 five-step model — know which your course tests.
Revenue recognition on your midterm?
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