How To Identify Performance Obligations in IFRS 15.pdf

Understanding how to recognize revenue correctly is important for businesses of all sizes. IFRS 15, Revenue from Contracts with Customers, is the global standard that helps companies report their revenue in a clear and consistent way.

1. How do you Identify
Performance Obligations
in IFRS 15
in IFRS 15

2. Understanding how to recognize revenue correctly is important
for businesses of all sizes. IFRS 15, Revenue from Contracts with
Customers, is the global standard that helps companies report
their revenue in a clear and consistent way.
One of the key steps in this process is identifying performance
obligations in a contract. Simply put, performance obligations
are the promises a business makes to deliver goods or services to
a customer. Getting this right is crucial because it affects when
and how revenue is recorded. If businesses misidentify their
performance obligations, it can lead to incorrect financial reports
and compliance issues.
IFRS 15 applies to businesses in various industries, from retail and
software to construction and services. Accountants, finance
teams, and business owners must understand how to properly
identify performance obligations to ensure accurate reporting.
So let us break down the process into simple steps to help you
comply with IFRS 15 with ease.

3. A performance obligation can be
A single product or service (e.g.,
selling a laptop).
A series of goods or services (e.g., a
12-month subscription).
A bundle of products and services
(e.g., a phone with a service plan).
What are
PERFORMANCE OBLIGATIONS IN IFRS 15?
PERFORMANCE OBLIGATIONS IN IFRS 15?
A performance obligation is a promise a business makes to deliver goods or services to a
customer as part of a contract. Under IFRS 15, companies must identify and account for each
distinct obligation separately to ensure proper revenue recognition.
To qualify as a separate performance
obligation, a good or service must be:
Distinct – The customer can use it
on its own or with readily available
resources.
Separately Identifiable – It is not
highly dependent on other
contract elements.

4. Steps to
IDENTIFY PERFORMANCEIDENTIFY PERFORMANCE
OBLIGATIONSOBLIGATIONS
Identifying performance obligations is a crucial step in
applying IFRS 15. Below is a step-by-step guide to help
businesses identify the performance obligations in the
contract:
Step 1: Identify the Contract with a Customer
Step 2: Identify Distinct Goods or Services
Step 3: Assess Whether Goods or Services Are Distinct
Within the Context of the Contract
Step 4: Consider Variable Consideration and Options for
Additional Goods/Services

5. Examples of
IDENTIFYING PERFORMANCEIDENTIFYING PERFORMANCE
OBLIGATIONS IN IFRS 15OBLIGATIONS IN IFRS 15
Understanding how to identify performance obligations in
different industries can help businesses apply IFRS 15
correctly. Here are some practical examples:
Example 1: Software Company Selling Licenses
with Maintenance Services
Example 2: Construction Contracts with Multiple
Deliverables
Example 3: Airline Ticket with Additional Services
Example 4: Hotel Offering Stay Packages with
Additional Benefits

6. GET PROFESSIONALGET PROFESSIONAL
GUIDANCE TODAYGUIDANCE TODAY
Understanding and correctly identifying performance
obligations under IFRS 15 is crucial for proper revenue
recognition and financial reporting. By carefully
reviewing contracts, determining distinct goods or
services, and following the right steps, businesses can
stay compliant and avoid financial errors.
If you’re unsure about IFRS 15 or need expert
guidance, Shuraa Tax is here to help! Our team can
assist you in navigating the complexities of financial
reporting and ensuring compliance with ease. Contact
us today to get professional support tailored to your
business needs.

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