Home IFRS 15 Ep 05 — Recognising Revenue
Episode 05 · 8 min Step 5 · Recognise revenue

When Does Each Obligation Become Revenue?

// Over time vs point in time · the IFRS 15.35 three-criteria test

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GH₵ 1 · Contract 2 · Obligations 3 · Price 4 · Allocate 5 · Recognise EPISODE 05 · IFRS 15 · STEP 5 Recognising Revenue When does each obligation turn into revenue? Over time, or at a point in time. PRESS PLAY ▶ RECAP · EPISODES 01–04 ALL DONE 3 POs · 3 ALLOCATED PRICES Home · 725,438 · Warranty · 39,750 · Maintenance · 29,813 When does each become revenue? That is the final IFRS 15 question — Step 5. → TODAY: TIMING OF RECOGNITION IFRS 15.31 · Recognise revenue when (or as) each PO is satisfied — by transferring control of the good or service. TWO PATTERNS · WHEN A PO BECOMES REVENUE PATTERN A · OVER TIME Recognise as you go. A little revenue each period as the obligation is satisfied. Examples: services, monthly subscriptions, long construction contracts where the customer benefits as work progresses. ↗ GRADUAL CURVE PATTERN B · POINT IN TIME Recognise at one moment. The full revenue triggers when control transfers to the customer. Examples: a finished house at handover, retail goods at the till, a car when keys are handed over. Single delivery moment. ⚡ SUDDEN STEP Each PO must be classified into one of these two — IFRS 15.31. IFRS 15.35 · OVER-TIME TEST · ANY ONE TRIGGERS If just one criterion is met → recognise over time. CRITERION (a) Customer simultaneously receives & consumes benefits as you perform. Cleaning. Security. Lawn care. Maintenance. Subscription services. ↑ TERRAGOLD'S WARRANTY ↑ TERRAGOLD'S MAINTENANCE CRITERION (b) Creating an asset that customer controls while you create it. Building on the customer's land where they take title progressively. — NOT TERRAGOLD'S CASE CRITERION (c) Asset has no alternative use + enforceable right to pay. Custom-built bridge for one city — useless to anyone else if they cancel. — NOT TERRAGOLD'S HOME For TerraGold, only criterion (a) holds — and only for warranty & maintenance. IFRS 15.38 · POINT-IN-TIME · CONTROL TRANSFER MARKERS If none of the over-time criteria fit, look for a single moment. "Control" = the customer can direct the use of the asset and obtain substantially all the remaining benefits from it. FIVE INDICATORS OF CONTROL TRANSFER 1 Present right to payment for the asset. 2 Customer has legal title. 3 Physical possession transferred. 4 Risks & rewards of ownership shifted. 5 Customer accepted the asset. No single indicator is decisive — the entity weighs them together. HOME · POINT IN TIME · DAY 720 Mrs. Owusu doesn't occupy or control the house during construction. Title transfers at handover. Risks & rewards transfer then. None of (a)/(b)/(c) apply. RECOGNITION · ALL OR NOTHING AT HANDOVER Days 1–719 (construction): no revenue recognised on the home. ⚡ Day 720 (handover): GH₵725,438 recognised in one entry. Day 721 onwards: home revenue is fully booked. Costs of construction also realised. ⚡ POINT IN TIME · 725,438 ON DAY 720 In Ghana, off-plan home sales typically follow this pattern unless the contract gives the buyer control during build. WARRANTY SERVICE · OVER 24 MONTHS Mrs. Owusu receives benefit each month — repair call-outs, scheduled checks. Criterion (a) of IFRS 15.35 fits perfectly — simultaneous receive and consume. RECOGNITION SCHEDULE · GH₵39,750 / 24 MONTHS Total allocated: 39,750. Service period: 24 months from handover. Pattern: time-based, even spread (no specific output measure available). $ Per month: 39,750 ÷ 24 = ~1,656 cedis recognised every month. ↗ OVER TIME · 1,656 / MONTH FOR 24 MONTHS Slow drip of revenue over two years — matches the pattern of value delivered. WARRANTY · MONTHLY REVENUE CALCULATION EVEN-SPREAD CALCULATION Allocated price for warranty GH₵ 39,750 ÷ Months of service 24 Monthly revenue ~1,656 JOURNAL ENTRY · EACH MONTH FOR 24 MONTHS (FROM HANDOVER) DR Contract liability 1,656 CR Revenue — warranty service 1,656 COMMON-AREA MAINTENANCE · OVER 12 MONTHS Lawns. Security. Lighting. The pool. Mrs. Owusu benefits each month. Same logic as the warranty — criterion (a) holds. Recognise over time. CALCULATION Allocated price for maintenance GH₵ 29,813 ÷ Months of service 12 Monthly revenue ~2,484 Twelve monthly entries of GH₵2,484 each, then the maintenance obligation is fully satisfied. THE FULL TIMING PICTURE Three POs. Three timing patterns. · Day 720 (handover): +725,438 home revenue. · Months 1–24: +1,656/mo warranty drip. · Months 1–12: +2,484/mo maintenance drip. · By month 48: all 795,000 booked. Honestly. Period by period. The five-step model is now applied end to end. Episode 6: putting it all together with journal entries. TAKE THE QUIZ → Pass the quiz to earn your CPD certificate. RESULT 5-step model done · journal entries next
NARRATOR · KOJO Welcome to Episode 1 of IFRS 15. Press the play button below to begin.
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