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Chapter 4

1.6 Step 5: Recognise revenue

Revenue is recognised when (or as) the entity satisfies a performance obligation by
transferring a promised good or service to a customer.

An entity must determine at contract inception whether it satisfies the performance
obligation over time or at a point in time.

Performance
obligation 1

Satisfied over Satisfied at a
time? point in time?

IFRS 15 states that an entity only satisfies a performance obligation
over time if one of the following criteria is met:

 the customer simultaneously receives and consumes the benefits
from the entity’s performance

 the entity is creating or enhancing an asset controlled by the
customer

 the entity cannot use the asset ‘for an alternative use’ and the
entity can demand payment for its performance to-date.

If a performance obligation is satisfied over time, then revenue is recognised based
on the progress towards completion.

Illustrations and further practice

Now try TYU 6 – 8 from Chapter 4.

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