Before the issuance of IFRS 15, income recognition was based on IAS 18.
This standard established that an entity could recognize income to the extent that a company transferred the risks and benefits associated with the transferred assets.
However, as of the entry into force of IFRS 15, an entity must recognize income from the sale of goods and services based on the satisfaction of performance obligations.
Now, what are performance obligations?
IFRS 15 recognizes the income based on contracts; these contracts have rights and obligations.
Inside these agreements, an entity can identify different goods and services and obligations between clients and suppliers.
In this way, the main factor in identifying a performance obligation under IFRS 15 is to establish whether these goods or services set in the contract are different or equal.
If, for example, ten products are identified within a contract, of which six are the same, and four products are different, this means that within this contract there are five performance obligations, made up of four different products, and the last group is made up of 6 equal products.
However, it is important to explain what it means for an asset to be distinct in IFRS 15 context.
Paragraph 27 of this standard establishes that a product is different if the two criteria shown below are met:
a) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the
customer (ie the good or service is capable of being distinct); and
b) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (ie the
promise to transfer the good or service is distinct within the context of the contract).
In addition to paragraph 27, paragraph 29 of this same standard is necessary to review.
There it establishes that when evaluating whether an entity’s commitments to transfer goods or services to the customer are separately identifiable according to the paragraph 27 (b), an entity must evaluate the following requirements:
a) the entity provides a significant service of integrating the goods or services with other goods or services promised in the contract into a bundle of goods or services that represent the combined output or outputs for which the customer has contracted.
b) One or more of the goods or services significantly modifies or customises, or are significantly modified or customised by, one or more of the other goods or services promised in the contract.
c) The goods or services are highly interdependent or highly interrelated.
In other words, each of the goods or services is significantly affected by one or more of the other goods or services in the contract.
Example of performance obligations:
Non-current assets held for sale accounting recognition are regulated in IFRS 5. This standard determines that the assets can be