On 1st January 2018, a new International Financial Reporting Standard came into use; IFRS 15, Revenue from Contract with Customers. The International Accounting Standards Board published the exposure draft on June 2010, and on May 2014 the outline became issued as a full standard with a four-year grace period. The reporting standard replaced other old accounting standards, including IAS 18, IAS 11 and IFRIC 13 to provide more relevance in recognition and disclosure of revenue in the financial statement.

IFRS 15, accounting standard, elaborates the recognition of revenue in the books of accounts in a manner that will suitably reflect the accurate and fair presentation of sales. According to the standard, there are two ways of recognising revenue. Number one is revenue recognised in point of time, and number two is revenue recognised over time.

In ascertaining for revenue recognises over time, the timing of recognition of income does not base on cash receipt or payment schedule. Instead, an entity recognises revenue when it satisfies a performance obligation by transferring control of a promised good or service to a customer.

When the entity receives income before the related performance obligation is satisfied, the advance payment should not be recognised as revenue until the commitment is satisfied. Instead, the company should consider the amount received as a contract liability (i.e. deferred revenue) in its statement of financial position.

For example, XYZ Company is selling a Bulldozer's at $80,000 and ABC Construction a customer has made a down payment of $20,000, the down payment will be recorded as deferred revenue until the obligation is satisfied.

Dr. ABC Construction $ 20,000

Cr. Deferred Revenue $ 16,949.15

Cr. VAT output $ 3050.85

ABC Construction has made the second instalment of $ 40,000. The treatment will be the same.

Dr. ABC Construction $ 40,000

Cr. Deferred Revenue $ 33,898.31

Cr. VAT output $ 6,101.69

The final payment. $ 20,000

Dr. ABC Construction $ 20,000

Cr. Deferred Revenue $ 16,949.15

Cr. VAT output $ 3050.85

Then...

Dr. Deferred Revenue $ 67,796.61

Cr. Revenue $ 67,791.61

It is essential to assess the timing of revenue because it a significant determinant of other representatives like tax, dividends and employee bonus. IFRS 15 provides a five steps model applied to all contracts with customers deriving sales to the business. The first step is to identify a contract with a customer. There should be an agreement between two or more parties with enforceable rights and obligations.

In that manner, both parties should commit to the contract, party's right to contract identified, payment terms also known, the agreement must hold commercial substance and probability of an entity (seller) to collect the consideration.

The second step is to identify the performance obligation in a contract. A performance obligation is a promise in a contract to deliver goods or services to a customer. It can be implicit or explicit. The performance obligation is recognised by distinguishing goods/services if they are distinct or not. Distinct goods or services can provide benefits to a customer on their own. Indistinct goods require other sets of goods to provide benefit.

The third step is determining the transaction price. The amount an entity expects to receive, upon issuing of goods and services to customer or client, must be settled. This is also known as the consideration amount.

The fourth step is to allocate transfer price to performance obligation in the contract. The entity should allot the transaction price to each good or service that describes the amount of consideration an entity receives for completing the performance obligation.

The final step is revenue when (or as) an entity satisfies the performance obligation. The performance obligation is satisfied when the control of goods or services is transferred to the customer.

The article provides a brief summary of how a business should account revenue overtime. However, due to the complexity of IFRS 15 further notes are required in order to provide more understanding of the case.