IFRS 15: applying the five-step model

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. The five-step model in IFRS 15 applies to revenue earned from a contract with a customer with limited exceptions, regardless of the type of revenue transaction or the industry. Which of the steps below is not a valid step in IFRS 15?

  2. Step one in the five-step model requires the identification of the contract with the customer. A contract is an agreement between parties that creates enforceable rights and obligations. Which of the following conditions regarding the identification of a contract is not set out in IFRS 15?

  3. Step two requires the identification of the separate performance obligations in the contract. This is often referred to as unbundling, and is done at beginning of a contract. What is the key factor in identifying a separate performance obligation?

  4. IFRS 15 requires a series of distinct goods or services that are substantially the same with the same pattern of transfer, to be regarded as a single performance obligation. How does IFRS 15 determine whether the good or service is distinct?

  5. Step three requires the entity to determine the transaction price. This is the amount of consideration that an entity expects to be entitled to in exchange for the promised goods or services. The transaction price might include variable or contingent consideration. How does the entity estimate the amount of the variable consideration?

  6. An entity can only include variable consideration in the transaction price to the extent that it is highly probable that a subsequent change in the estimated variable consideration will not result in a significant revenue reversal. What action should the entity take if it is not appropriate to include all of the variable consideration in the transaction price?

  7. An entity should estimate the transaction price taking into account non-cash consideration, consideration payable to the customer and the time value of money. What criteria must be used to determine whether the time value of money is taken into account in determining the transaction price?

  8. Step 4 requires the allocation of the transaction price to separate performance obligations. The allocation is based on the relative standalone selling prices of the goods or services promised and is made at inception of the contract. It is not adjusted to reflect subsequent changes in the standalone selling prices of those goods or services. What is the best evidence of standalone selling price?

  9. Step 5 allows an entity to recognise revenue when (or as) each performance obligation is satisfied. Revenue is recognised in line with the pattern of transfer. If an entity does not satisfy its performance obligation over time, it satisfies it at a point in time and revenue will be recognised when control is passed at that point in time. Which of the following factors may not indicate the passing of control?

  10. When a contract contains more than one distinct performance obligation, an entity allocates the transaction price to each distinct performance obligation on the basis of the stand-alone selling price. A performance obligation is satisfied at a point in time unless it meets certain criteria. Which of the following conditions would not allow the performance obligation to be satisfied over time?