The IFRS 15 five-step model is to identify the contract, identify the performance obligations, determine the transaction price, allocate the transaction price and recognize revenue. Looking at step 5, which addresses the recognition of revenue, which one of the following statements is correct?
For the purposes of the control concept under IFRS 15, both goods and services are assets that a customer acquires, even if only momentarily, albeit the services may not be recognized as an asset in the Statement of Financial Position.
Control of an asset refers to the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. Benefits in the context of the control concept are limited to potential increases in cash inflows.
An entity satisfies a performance obligation by transferring the promised good or service to the customer. Under IFRS 15 a good or service is considered to be transferred when the associated risks and rewards transfer to the customer.
Ability in the context of the control concept refers to a customer’s future right to direct the use of and obtain substantially all of the remaining benefits from an asset (e.g., after production when a manufacturer produces an asset).
The correct statement regarding the recognition of revenue under IFRS 15 is:
An entity satisfies a performance obligation by transferring the promised good or service to the customer. Under IFRS 15, a good or service is considered to be transferred when the customer obtains control, meaning the ability to direct the use of and obtain substantially all of the remaining benefits from the asset.
The other statements provided are not entirely accurate according to IFRS 15 principles:
- The concept of control under IFRS 15 applies equally to goods and services; however, services are typically consumed immediately and don't result in an asset being recognized on the Statement of Financial Position.
- When discussing control over an asset, the reference to benefits is not limited to potential increases in cash inflows; it includes all economic benefits, such as cash inflows, cost savings, and reduced risks.
Therefore, the focus should be on the transfer of control, which标志着 the fulfillment of a performance obligation, not the transfer of risks and rewards.
