Explain the concept of performance obligation under ifrs 15

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Case Study: Digital Vision Ltd designs and develops corporate websites and also provides website maintenance and update services. Digital Vision agreed a contract with a new media company to design their website and provide a maintenance and update service for a 36 month period after the launch of the website for a total price of £5,400. The website was launched on 1 September 2020 and the client paid in full on that date. The website design would normally have cost £3,000 and a 36-month website maintenance service would normally be sold for £100 per month.

Questions

a. Explain the concept of 'performance obligation' under IFRS 15 Revenue from Contracts with Customers using the Digital Vision contract as an example. Also explain the criteria for the satisfaction of performance obligations over time and at a point in time with reference to Digital Design.

b. Explain steps 4 and 5 of the five-step approach to revenue recognition under IFRS 15 with reference to the Digital Vision contract and show how the contract should be accounted for in Digital Design's financial statements for the year ended 31 December 2020.

 

Reference no: EM133530908

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