What is the purpose of IFRS 15's five-step model?

• A. To decide when to recognise revenue and at what amount
• B. To classify revenue into operating or non-operating
• C. To calculate tax implications of contracts
• D. To determine the cost of goods sold

Answer: (A)

IFRS 15 uses a five-step model to tie revenue recognition to the actual transfer of goods or services to customers. The aim is to determine both when revenue should be recognised and how much should be recognised. The steps take you from identifying the contract and each promised performance obligation, to determining the transaction price, allocating that price to each obligation, and finally recognising revenue as each obligation is satisfied—either over time or at a point in time. This ensures the revenue reported reflects the real economic transfer to the customer, including considerations like variable consideration and any financing components. It isn’t about classifying revenue as operating or non-operating, nor about tax effects or costs of goods sold.