Revenue Recognition Five Step Model

Complete SKILL.md

The source below preserves the structure used in the installable package.

---
name: revenue-recognition-five-step-model
description: Apply the five-step revenue recognition model under new accounting standards (IFRS 15/ASC 606 equivalent) when recognizing revenue from customer contracts including sales of goods, service contracts, asset usage rights, and construction contracts. Use for all companies subject to new revenue standards: foreign-listed companies (from Jan 1, 2018), domestic listed companies (from Jan 1, 2020), and non-listed companies (from Jan 1, 2021).
---

# Revenue Recognition Five-Step Model

Apply this model when your enterprise has signed a contract with a customer and needs to recognize revenue under the new revenue recognition standard.

## When to Use

Use this skill when:
- Preparing financial statements under the new revenue recognition standard
- Determining how and when to recognize revenue from customer contracts
- Analyzing contracts for sales of goods, services, asset usage rights, or construction
- Transitioning from old revenue recognition standards to the new model

**Note:** This model does NOT apply to non-monetary asset exchanges, debt restructuring, or other special transactions. Refer to specific guidance for those scenarios.

## Execution Steps

### Step 1: Identify the Contract with the Customer

Confirm that a valid contract exists with the customer. A contract exists when:
- The parties have approved the contract and are committed to perform their obligations
- The entity can identify each party's rights regarding the goods or services
- The entity can identify the payment terms
- The contract has commercial substance
- It is probable that the entity will collect the consideration

### Step 2: Identify and Separate Performance Obligations

Identify the distinct performance obligations within the contract:

**Definition of Distinct Performance Obligation:**
- A promise to transfer a good or service that is **distinct**—the customer can benefit from it on its own or together with other readily available resources
- The promise to transfer the good or service is **separately identifiable** in the contract

**Handling Non-Distinct Items:**
- If a promised good or service is NOT distinct, combine it with other promised goods or services until the combination becomes distinct
- Judge from the **customer's perspective**, not based on costs incurred by the enterprise

### Step 3: Determine the Timing of Performance Obligation

Determine whether each performance obligation is satisfied over time or at a point in time.

**Over Time (Period of Time):**
Recognize revenue over time if ANY of the following criteria are met:
1. The customer simultaneously receives and consumes the benefits as the entity performs
2. The entity's performance creates or enhances an asset that the customer controls as the asset is created
3. The entity's performance does not create an asset with an alternative use, and the entity has an enforceable right to payment for performance completed to date

**Recognition Methods for Over Time:**
- Measure progress toward complete satisfaction of the performance obligation
- Use either: (a) output methods based on transfer of control, or (b) input methods based on costs incurred (similar to percentage of completion method)

**At a Point in Time:**
- If none of the over-time criteria are met, recognize revenue at the point when the customer obtains control of the good or service
- Control transfer replaces the old "risk and reward transfer" concept

### Step 4: Allocate the Transaction Price

When a contract contains multiple performance obligations:

**Allocation Principle:**
- Allocate the transaction price to each performance obligation in proportion to their **standalone selling prices**
- Include any contract discounts in the allocation

**Estimating Standalone Selling Prices:**
- If directly observable, use the actual standalone selling price
- If not observable, estimate using:
  - Adjusted market assessment approach (similar goods/services)
  - Expected cost plus margin approach
  - Residual approach (only in limited circumstances)
- Apply consistent estimation methods to similar contracts

### Step 5: Recognize Revenue When Performance Obligation is Satisfied

**Recognition Timing:**
- Recognize revenue when (or as) the entity satisfies a performance obligation
- This occurs when the customer obtains control of the good or service

**Control Definition:**
- The ability to direct the use of and obtain substantially all of the remaining benefits from the asset

**Key Accounting Treatments:**
- Recognize revenue at the **net amount** after deducting any amounts payable to the customer
- Record advance payments as **contract liabilities** until performance occurs
- For special transactions (quality guarantees, customer options, buybacks, IP licenses, discounts, buy-one-get-one, trade-ins, membership fees, installation fees), follow the specific guidance in the references

## Key Concepts

- **Control Transfer:** The new standard focuses on when control transfers to the customer, replacing the old "risk and reward" concept
- **Customer Perspective:** Always assess distinctness from the customer's viewpoint, not the enterprise's internal accounting
- **Contract Liability:** Amounts received before performance are recorded as contract liabilities, not unearned revenue

## Variables

- **Standalone Selling Price:** The price at which an entity would sell a promised good or service separately to a customer
- **Transaction Price:** The amount of consideration to which an entity expects to be entitled in exchange for transferring goods or services
- **Input Cost Ratio:** The proportion of costs incurred to date relative to total expected costs (for input methods)
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## Source Provenance

- Collection: `手把手教你读财报`
- Archive: `手把手教你读财报.zip`
- Source file: `../_sources/手把手教你读财报.md`
<!-- source-provenance:end -->