When a contract contains more than one performance obligation, the seller allocates the transaction price to each performance obligation in proportion to the relative stand-alone selling prices of those goods and services. according to the standard prices for the goods and any balance remaining is allocated to services. according to the amount of labor involved with each part of the contract. according to none of these choices.
When a contract contains more than one performance obligation, the seller allocates the transaction price to each performance obligation
- in proportion to the relative stand-alone selling prices of those goods and services.
- according to the standard prices for the goods and any balance remaining is allocated to services.
- according to the amount of labor involved with each part of the contract.
- according to none of these choices.
Contract: A contract is a legal agreement among two or several parties to perform some task and defines the roles and responsibilities of each party.
Performance obligation: An agreement in a contract to deliver goods and provide services till the specified period.
Transaction price: It refers to the price which a company is entitled to receive in exchange for services provided and goods delivered.
In this case, IFRS 15 is applied.
IFRS 15 refers to the standard that established the principle for entities when a contract is made with the customer and reports information related to nature, timing, performance obligation, amount, and other specific details that are required for a contract agreement. By applying this, an entity comes to know about the consideration/revenue they are expected to be received in exchange for services provided and goods delivered.
IFRS 15 has introduced five steps to recognize revenue:
First: Identification of contract with the customer
Second: Identification of performance obligation
Third: Determination of transferred price
Fourth: Allocation of transaction price based on relative stand-alone selling prices
Fifth: Recognition of revenue when all four steps are completed.
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