Revenue in five steps: how AASB 15 decides when you book the sale

You close a deal for 120,000 dollars. The cash lands next week. So you book 120,000 of revenue now, right? Not so fast. The invoice tells you what the customer pays. It does not tell you when you have earned it, or how much of it belongs to this month at all.

The one question this answers

How do I recognise revenue under AASB 15 for a contract that bundles more than one promise, and when does each piece hit the profit and loss?

The background in 60 seconds

AASB 15 replaced the old revenue and construction-contract standards with a single principle: recognise revenue to show the transfer of goods or services to a customer, in the amount you expect to be entitled to (para 14). It applies to almost every contract with a customer, with a few carve-outs such as leases under AASB 16 and financial instruments under AASB 9 (para 5). Everything else runs through the same five steps.

Figure · AASB 15

The five-step model, end to end

1. 1

   Identify the contract paras 9-16

   Approved, committed, rights and payment clear, commercial substance, collection probable.

2. 2

   Identify the performance obligations paras 22-30

   Each distinct promise the customer can benefit from on its own and that is separately identifiable.

3. 3

   Determine the transaction price paras 47-72

   What you expect to be entitled to, net of amounts collected for third parties; adjust for variable and financing.

4. 4

   Allocate the price paras 73-90

   Split the price across the obligations on a relative stand-alone selling price basis.

5. 5

   Recognise revenue paras 31-45

   When (point in time) or as (over time) the customer obtains control of each obligation.

The decision points

Work the model in order. Each step feeds the next.

1. Is there a contract? It has to be approved, commit both sides, set out rights and payment, have commercial substance, and it has to be probable you will collect (paras 9 to 16). No contract, no step two.
2. What did you actually promise? Identify each distinct performance obligation. A promise is distinct when the customer can benefit from it on its own and it is separately identifiable in the contract (paras 22 to 30).
3. What is the price? The transaction price is what you expect to keep, net of anything you collect for someone else such as GST (paras 47 to 72).
4. How does the price split across the promises? Allocate on a relative stand-alone selling price basis (paras 73 to 90).
5. When do you book it? As control passes, either over time or at a point in time (paras 31 to 45).

A worked example

Meet Northwind Systems. It signs one contract with a customer for 120,000 dollars: a perpetual software licence, delivered on day one, plus twelve months of support and updates.

Those are two distinct promises. The customer can use the licence without the support, and the support is a separate service delivered over the year. So step two gives two performance obligations.

Now the price. Sold separately, Northwind lists the licence at 100,000 and the year of support at 40,000. That is 140,000 of stand-alone value for a contract that costs 120,000. The 20,000 gap is a bundle discount, and step four spreads it across both promises in proportion to their stand-alone prices.

Figure · AASB 15

Splitting one price across two promises

Stand-alone total $140,000 → Contract price $120,000

Software licence $100,000 $85,714 Point in time - on delivery

12 months support $40,000 $34,286 Over time - straight line

Column: stand-alone price → allocated revenue → when it hits the P&L

Performance obligation	Stand-alone price	Allocated revenue
Software licence (point in time)	100,000	85,714
12 months support (over time)	40,000	34,286
Total	140,000	120,000

Then step five sets the timing. The licence transfers control on delivery, so Northwind books 85,714 at a point in time, on day one. The support is consumed evenly across the year, so its 34,286 is recognised over time, straight line, at about 2,857 a month (para 35). Same 120,000 contract, two very different revenue profiles.

The plain fix

1. List the promises before you list the price. Count the distinct performance obligations first.
2. Find the stand-alone selling price of each, even when the contract only shows one bundled number.
3. Allocate the price in proportion, so any discount lands on every promise.
4. Ask, for each promise, whether control passes at a point in time or over time, and book it on that timing.

Why this matters beyond the books

Revenue is the first line every reader looks at, and the one most likely to be restated. Get the promises and the timing right once, document the stand-alone prices you used, and your top line stays defensible when an auditor or an investor asks. That is the whole game: a clear standard, turned into numbers you can stand behind.