IFRS 15 for ACCA SBR: The Five Step Model Worked Through With Exam-Style Questions and Model Answers

1. How is IFRS 15 actually examined in Strategic Business Reporting?

The exam format matters because it shapes what a good answer looks like. ACCA's published syllabus and study guide for SBR sets the exam at three hours fifteen minutes across two sections. Section A carries two scenario-based questions, worth 30 marks and 20 marks, with the first centred on group accounting and the second requiring candidates to consider the reporting implications and the ethical implications of specific events. Section B carries two discursive, scenario-based questions of 25 marks each, which may contain computational elements. Two professional marks are awarded in question two and two in question four. ACCA, Strategic Business Reporting (SBR-INT) syllabus and study guide, September 2025 to June 2026, accaglobal.com.

Read that structure back against IFRS 15 and the shape of a revenue question becomes predictable. Revenue is rarely the whole of a 25 mark Section B question. It is more often one of two or three reporting issues inside a scenario, worth eight to twelve marks, with a director's proposed treatment attached to it that you are asked to evaluate. That framing is the single most common way acca ifrs 15 content reaches the paper, and it is why the five step model is a structure for your answer rather than the content of it.

What separates a weak answer from a strong one

ACCA's own technical article on maximising marks in Section B is explicit that candidates should apply IFRS principles to the specific scenario rather than writing generic summaries of the Standard, should structure answers with sub-headings taken from the requirement, and should use short sentences and put each point in a new paragraph. It also warns that explaining facts already stated in the scenario earns nothing. ACCA, Recommended approach to Section B of the Strategic Business Reporting exam, accaglobal.com.

Translate that into revenue. Three habits separate a passing revenue answer from a failing one, and none of them is technical knowledge.

The right-hand column is not longer because it is padded. It is longer because it names the paragraph, states the fact that satisfies it, and reaches a conclusion. That is the three part sentence that earns revenue marks, and it is the sentence this article drills through every one of the five steps. If you want the underlying mechanics at full depth rather than at exam depth, the complete IFRS 15 guide works through the same model without the exam framing.

Local FAQs

Is IFRS 15 examinable in SBR? Yes. Revenue sits at section C1 of the SBR syllabus and study guide, with learning outcomes covering the recognition criteria, contract revenue and costs including modifications, and more complex scenarios such as performance obligations satisfied over time, rights of return and principal versus agent. All are assessed at Level 3, synthesis and evaluation.

How many marks is a revenue question worth? There is no fixed allocation, and anyone who tells you otherwise is guessing. Revenue typically appears as one reporting issue within a larger scenario question rather than as a whole question. Plan on the assumption that a revenue issue inside a 25 mark Section B question is worth a proportion of it, and allocate your time to the marks you can see in the requirement rather than to the standard you happen to know best.

Potential risks

The risk in preparing for revenue in SBR is preparing for the wrong exam. The five step model is easy to memorise, which makes it feel like progress. It is not the examinable content. The examinable content is the set of judgements inside the steps: whether a promise is separately identifiable under IFRS 15.29, whether an estimate survives the constraint in IFRS 15.56, which of the three criteria in IFRS 15.35 is met, and how a modification routes through IFRS 15.20 or 15.21. A candidate who can recite the five steps and cannot make any of those calls will write a page and score two marks.

2. Step 1: when does a contract exist, and what happens when it does not?

That distinction is worth marks because it is counter-intuitive. The intuitive answer is that a distressed customer means no contract and no revenue. The correct answer requires you to split the shortfall into two components: the part the entity has decided not to pursue, which is a price concession and reduces revenue, and the part the entity still expects but may not receive, which is a credit loss under IFRS 9 and sits below the revenue line. Getting that split the wrong way round moves the debit from revenue to impairment or back, and both the gross margin and the operating result move with it.

What the standard does when there is no contract

Exam scenarios use this in a specific way. A customer in a jurisdiction with currency controls, or a start-up customer with no trading history, pays a deposit and the entity books the deposit as revenue. The requirement asks you to evaluate the director's treatment. The answer runs: assess the IFRS 15.9 criteria, conclude that (e) fails because collection of the amount to which the entity will be entitled is not probable, then apply IFRS 15.15 and 15.16 to hold the deposit as a liability rather than revenue, then note the continuing reassessment obligation in IFRS 15.14. That is four referenced points from a fact pattern that reads as one sentence.

Local FAQs

Does a contract have to be written for IFRS 15 to apply? No. IFRS 15.9(a) accepts approval "in writing, orally or in accordance with other customary business practices". What matters is enforceability and commitment, not documentation. An exam scenario describing a long-standing oral arrangement backed by consistent past dealings is describing a contract.

If IFRS 15.9(e) fails, is the revenue lost forever? No. IFRS 15.14 requires continuing assessment, and if the criteria are subsequently met the contract enters the model from that point. Cash received in the meantime sits as a liability under IFRS 15.16 and is measured at the amount received.

Is a shortfall from a distressed customer a concession or a bad debt? It depends on entitlement. If the entity has decided, or is expected, to accept less, the shortfall is a price concession, is variable consideration under IFRS 15.52(a) and reduces the transaction price. If the entity still expects the full amount but doubts recovery, the shortfall is a credit loss under IFRS 9 and is presented as an impairment, not as reduced revenue. Both routes are worked through in the variable consideration and constraint article.

Potential risks

The risk is treating Step 1 as a formality and writing one line on it. In a scenario with a distressed customer or an unsigned agreement, Step 1 is where several of the marks are. The second risk is the mirror image: writing all five IFRS 15.9 criteria out in full for a straightforward scenario where none of them is in issue. That is the generic-summary trap ACCA warns against. Deal with the four uncontentious criteria in a single sentence and spend the words on the one the examiner planted.

3. Step 2: what makes a promise distinct, and what never does?

Limb (a) is therefore easy to satisfy and rarely decisive. Candidates who spend three sentences establishing that a customer can benefit from software have spent three sentences on the limb nobody is arguing about. The argument is in limb (b), and IFRS 15.29 tells you exactly what to argue about.

The series, and why it is not a shortcut

Row two and row three reach the same answer by different factors, and saying which factor you relied on is the difference between a mark and a half mark. The deep dive on performance obligations and the distinct test works through further patterns, including where the three factors point in opposite directions.

Local FAQs

Does the customer have to be able to benefit from the item on its own? No. IFRS 15.27(a) allows benefit "either on its own or together with other resources that are readily available", and IFRS 15.28 confirms that resources already transferred under the same contract count. That is why installation services usually clear limb (a) despite being worthless without the machine.

If the contract prices each item separately, are they separate performance obligations? Not necessarily. Pricing is evidence, not a test. IFRS 15.27 and 15.29 govern, and IFRS 15.77 says expressly that a contractually stated price "may be (but shall not be presumed to be)" the stand-alone selling price. A contract that itemises design, build and commissioning can still be one performance obligation under IFRS 15.29(a).

Can something be capable of being distinct but still not distinct? Yes, and that is the whole point of the second limb. Bespoke construction is the standing example: bricklaying is capable of being distinct, but IFRS 15.29(a) integration means it is not separately identifiable within the context of the contract, so IFRS 15.30 combines it into a single performance obligation.

Potential risks

Two risks, and they pull in opposite directions. The first is over-splitting: identifying five performance obligations in a bespoke construction contract because the contract has five line items, which ignores IFRS 15.29(a) and produces a Step 4 allocation that should never have been performed. The second is over-combining: treating a machine and a routine service plan as one obligation because they were sold together, which ignores the fact that none of the IFRS 15.29 factors is present and defers revenue that should have been recognised on delivery. Both errors are visible to a marker in one line, because both skip the IFRS 15.29 analysis.

4. Step 3: how is the transaction price built, and where does the constraint bite?

Estimating variable consideration: two methods, one choice

The constraint is a second, separate test

Row four is the trap in licensing scenarios. The sales-based and usage-based royalty exception in IFRS 15.B63 overrides the general variable consideration machinery for licences of intellectual property, which means candidates who diligently estimate and constrain a royalty stream have applied the wrong paragraph carefully. That interaction is worked through in the licensing article, and the general estimation and constraint mechanics in the variable consideration article.

The significant financing component

IFRS 15.61 sets the objective: to recognise revenue "at an amount that reflects the price that a customer would have paid for the promised goods or services if the customer had paid cash for those goods or services when (or as) they transfer to the customer (ie the cash selling price)". IFRS 15.62 then lists circumstances in which no significant financing component exists despite a timing difference, including where the customer paid in advance and the timing of transfer is at the customer's discretion, where a substantial amount of the consideration is variable on an event outside either party's control, and where the difference between the promised consideration and the cash selling price arises for reasons other than the provision of finance. IFRS 15.64 requires the discount rate to be the rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception, reflecting the credit characteristics of the party receiving the financing.

Local FAQs

Do I estimate first and constrain second, or constrain first? Estimate first. IFRS 15.56 operates on "an amount of variable consideration estimated in accordance with paragraph 53", so the sequence is fixed by the drafting. Show both steps separately in your answer, because in most mark schemes they are separate points.

Is "highly probable" the same as "probable"? No. IFRS 15 uses "probable" in IFRS 15.9(e) and "highly probable" in IFRS 15.56, and the difference is deliberate. Using the wrong one in an answer signals that the two tests have been merged.

Can the constraint reduce an estimate to nil? Yes. IFRS 15.56 permits inclusion of "some or all" of the estimate, which by implication includes none of it. A bonus dependent on a regulator's decision two years out will often be constrained entirely, and the correct answer states that the estimate under IFRS 15.53(b) is the full bonus and the amount included in the transaction price is nil.

Potential risks

The risk that costs most marks in Step 3 is skipping straight from the scenario to a number. A candidate reads "bonus of 2m, 70% likely", writes 1.4m and moves on. Two errors in one line: the method is wrong for a binary outcome, and the constraint has not been considered at all. The discipline is mechanical. Name the method and say why under IFRS 15.53(a) or (b). State the estimate. Then run IFRS 15.56 against the IFRS 15.57 factors and state the amount included. Three sentences, three marks, and it works on every variable consideration scenario you will ever be given.

5. Step 4: why does allocation ignore the prices written in the contract?

Estimating a stand-alone selling price: three methods and one gate

IFRS 15.78 sets the discipline that runs across all three: the entity "shall maximise the use of observable inputs and apply estimation methods consistently in similar circumstances". IFRS 15.80 permits a combination of methods where two or more items have highly variable or uncertain prices, and requires the entity to check the result back against the IFRS 15.73 objective. That check is the safety valve. If a mechanically correct allocation gives one obligation almost nothing, the allocation does not meet the objective and the estimates need revisiting.

The stated prices total the transaction price of 90,000, which is why allocating at stated prices feels safe. It is not. The customer received a bundle discount of 20,000 against stand-alone selling prices of 110,000, and IFRS 15.81 requires that discount to be allocated proportionately to all performance obligations unless the IFRS 15.82 evidence conditions are met. Allocating at stated prices puts the whole 20,000 discount on the equipment and the service plan in the proportions the sales team happened to write down. Under the correct allocation the equipment carries 65,455 rather than 70,000, so 4,545 of revenue moves out of the delivery period and into the two year service period. On these figures that is a five per cent shift in the equipment revenue line, and in an exam it is the difference between the treatment being right and being wrong.

Check the arithmetic. 80,000 divided by 110,000 is 0.72727, times 90,000 is 65,454.5, rounded to 65,455. 10,000 divided by 110,000 is 0.09091, times 90,000 is 8,181.8, rounded to 8,182. 20,000 divided by 110,000 is 0.18182, times 90,000 is 16,363.6, rounded to 16,363 so that the column foots to 90,000 exactly. Showing that the column foots is worth doing in a script, because an allocation that does not foot tells the marker you have not checked it.

Local FAQs

Can I allocate using the prices in the contract? Only if they equal the stand-alone selling prices, and IFRS 15.77 forbids presuming that they do. Where the sum of the stand-alone selling prices exceeds the transaction price, a discount exists and IFRS 15.81 allocates it proportionately unless the IFRS 15.82 conditions are met. In an exam, if the contract prices and the stand-alone selling prices differ, the difference is the point of the question.

When can I use the residual approach? Only through the gate in IFRS 15.79(c)(i) or (ii): a highly variable selling price, meaning the entity sells the same item to different customers at or near the same time for a broad range of amounts, or an uncertain price, meaning the item has never been sold separately and no price has been established. Address the gate explicitly before using the method.

Does variable consideration get allocated to every performance obligation? Not necessarily. IFRS 15.84 to 15.86 allow variable consideration to be allocated entirely to a specific performance obligation or to a specific distinct good or service in a series where the variable payment relates specifically to that item and the allocation meets the IFRS 15.73 objective. A completion bonus that relates only to the construction phase of a two obligation contract is the standard illustration. The mechanics are set out in the allocation deep dive.

Potential risks

The risk in Step 4 is arithmetic that is right and reasoning that is missing. A perfectly footed allocation table with no sentence explaining where each stand-alone selling price came from earns the calculation marks and none of the explanation marks, and ACCA's own guidance on Section B warns that scripts concentrating on calculation are exposed because mark schemes allocate limited marks to numerical work. Write one line per stand-alone selling price naming its source and the paragraph that supports it, then do the maths.

6. Step 5: over time or at a point in time, and which criterion did you rely on?

The two limbs of IFRS 15.35(c)

Criterion (c) is the one that carries the most marks because it has two limbs and both must be satisfied. IFRS 15.36 defines the first: an asset has no alternative use "if the entity is either restricted contractually from readily directing the asset for another use during the creation or enhancement of that asset or limited practically from readily directing the asset in its completed state for another use". It adds that the assessment is made at contract inception and "an entity shall not update the assessment of the alternative use of an asset unless the parties to the contract approve a contract modification that substantively changes the performance obligation".

IFRS 15.B11 to B13 add a further caution that is worth a sentence in an answer: "The payment schedule specified in a contract does not necessarily indicate whether an entity has an enforceable right to payment for performance completed to date." Milestone billing is not a right to payment. A contract that bills 30 per cent on signature, 40 per cent on delivery and 30 per cent on acceptance tells you nothing about entitlement on termination.

Point in time, and the IFRS 15.38 indicators

Note also what IFRS 15.38(d) does to the old IAS 18 habit. Risks and rewards survive only as one indicator among five, and IFRS 15.38(d) requires the entity to "exclude any risks that give rise to a separate performance obligation in addition to the performance obligation to transfer the asset". An entity that has delivered a machine but still owes two years of maintenance has not retained a risk that delays control of the machine. It has a second performance obligation. The over time versus point in time article works through the indicators against harder fact patterns.

Measuring progress

Two adjustments to cost-based input methods are frequently examined and both come from IFRS 15.B19. The first is inefficiency: "an entity would not recognise revenue on the basis of costs incurred that are attributable to significant inefficiencies in the entity's performance that were not reflected in the price of the contract (for example, the costs of unexpected amounts of wasted materials, labour or other resources...)". Wastage inflates costs incurred and would inflate the percentage complete, so it is stripped out of the numerator. The second is uninstalled materials: where a cost is not proportionate to progress, the best depiction "may be to adjust the input method to recognise revenue only to the extent of that cost incurred", subject to the four conditions in IFRS 15.B19(b)(i) to (iv), including that the good is not distinct, the customer obtains control significantly before receiving the related services, the cost is significant relative to total expected costs, and the entity procures the good from a third party without significant involvement in designing and manufacturing it. In plain terms, a large bought-in component sitting on site is recognised at zero margin.

Local FAQs

Do all three IFRS 15.35 criteria have to be met? No. IFRS 15.35 says "if one of the following criteria is met". One is enough. What is not enough is concluding "over time" without saying which one.

Is a construction contract always recognised over time? No, and assuming so is a standing error. Where the entity builds on its own land and can sell the completed unit to another buyer, the asset has an alternative use, IFRS 15.35(c) fails at the first limb, and unless the customer controls the work in progress under IFRS 15.35(b), the obligation is satisfied at a point in time on transfer of the completed unit.

Does retention of title defer revenue? Not by itself. IFRS 15.38(b) says that title retained solely as protection against non-payment does not preclude the customer obtaining control. Weigh it with the other indicators rather than treating it as decisive.

What if progress cannot be measured? IFRS 15.45 permits revenue only to the extent of costs incurred, provided those costs are expected to be recovered. Say expressly that it is a temporary measure that stops as soon as the outcome can be estimated.

Potential risks

The risk in Step 5 is a conclusion floating free of a criterion. Markers can award a mark for identifying that an obligation is satisfied over time, but the substantive marks attach to the criterion and the fact that satisfies it. The related risk is inconsistency between Step 2 and Step 5: a candidate who identified three performance obligations at Step 2 must reach a separate timing conclusion for each at Step 5, and a script that identifies three obligations and then makes one blanket timing statement has answered half the question.

7. Which IFRS 15 topics carry more marks than their length suggests?

Principal versus agent: gross or net

IFRS 15.B36 gives the consequence for an agent: revenue is "the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party", which "might be the net amount of consideration that the entity retains after paying the other party". IFRS 15.B37 then lists the indicators that the entity controls the specified good or service and is therefore a principal: primary responsibility for fulfilling the promise, including responsibility for the acceptability of the good or service; inventory risk before transfer or after transfer where the customer has a right of return; and discretion in establishing the price. Three indicators, none decisive alone.

Warranties: two types only

IFRS 15.B31 gives the factors for deciding whether a warranty that cannot be bought separately nonetheless provides a service: whether the warranty is required by law, where "the existence of that law indicates that the promised warranty is not a performance obligation"; the length of the coverage period, where "the longer the coverage period, the more likely it is that the promised warranty is a performance obligation"; and the nature of the tasks promised, where tasks necessary to provide the assurance, such as a return shipping service for a defective product, "likely do not give rise to a performance obligation". IFRS 15.B33 then deals with the mixed case: where an entity promises both an assurance-type warranty and a service-type warranty "but cannot reasonably account for them separately, the entity shall account for both of the warranties together as a single performance obligation".

Rights of return: four journal legs, not two

IFRS 15.B22 confirms that the promise to stand ready to accept a return "shall not be accounted for as a performance obligation in addition to the obligation to provide a refund", which disposes of the candidate who identifies the return right as a separate performance obligation. IFRS 15.B23 routes the measurement of expected entitlement through IFRS 15.47 to 15.72 including the constraint in IFRS 15.56 to 15.58, so the returns estimate is variable consideration and is estimated under IFRS 15.53(a) using expected value where the population is large. IFRS 15.B24 requires the refund liability to be updated at each reporting date with the adjustment going to revenue.

The four legs are worked in full, with numbers, in practice question four below. The warranties, returns and customer options article covers the same ground for practitioners rather than for candidates.

Contract modifications: three routes

Where IFRS 15.20 is not met, IFRS 15.21 gives the routing. Under IFRS 15.21(a), if the remaining goods or services are distinct from those already transferred, the modification is treated "as if it were a termination of the existing contract and the creation of a new contract", and the consideration allocated to the remaining performance obligations is the sum of the unrecognised consideration from the original contract and the consideration promised in the modification. That is a prospective adjustment: nothing already recognised is disturbed. Under IFRS 15.21(b), if the remaining goods or services are not distinct and form part of a single performance obligation that is partially satisfied, the modification is treated "as if it were a part of the existing contract" and the effect on the transaction price and on the measure of progress "is recognised as an adjustment to revenue... at the date of the contract modification (ie the adjustment to revenue is made on a cumulative catch-up basis)". That is a retrospective catch-up. IFRS 15.21(c) covers combinations of the two.

The routing is worked with numbers in practice question four, and at greater depth in the contract modifications article. Two points are worth carrying into the exam. First, IFRS 15.19 deals with a modification approved in scope but not yet in price: the entity estimates the change to the transaction price under the variable consideration paragraphs rather than waiting. Second, a price reduction agreed for goods already delivered, for example because of a quality complaint, is not a modification adding goods or services at all. It is a change to the transaction price of the existing contract and it reduces revenue.

Material rights

Local FAQs

Is an extended warranty always a performance obligation? If the customer can buy it separately, yes. IFRS 15.B29 makes a separately purchasable warranty a distinct service and therefore a performance obligation. If it cannot be bought separately, apply the IFRS 15.B31 factors and decide whether it provides a service beyond assurance of compliance with agreed-upon specifications.

How do I know if the entity is a principal? Identify the specified good or service first under IFRS 15.B34A(a), then ask whether the entity controls it before transfer under IFRS 15.B35, using the three IFRS 15.B37 indicators as evidence. Do not start with the indicators. The principal versus agent article works through the harder platform and intermediary cases.

Which returns journal legs do I need? Four. Revenue for the amount expected to be entitled, a refund liability for the rest, a return asset for the right to recover product, and the corresponding reduction in cost of sales. IFRS 15.B21(c) puts the cost of sales adjustment in the paragraph itself, and IFRS 15.B25 measures the asset at former carrying amount less expected recovery costs and value decline.

When does a modification get cumulative catch-up treatment? Only under IFRS 15.21(b), where the remaining goods or services are not distinct and form part of a single partially satisfied performance obligation. Most bespoke construction variations land here. Additional distinct units at a discount land in IFRS 15.21(a) and are prospective.

Potential risks

The risk with these five topics is treating them as separate memorised rules rather than as applications of the five step model. Every one of them is a Step 2 or Step 3 question in disguise. A service-type warranty is a performance obligation, which is Step 2, and it takes an allocation, which is Step 4. A right of return is variable consideration, which is Step 3. A material right is a performance obligation, which is Step 2. A modification asks whether the added goods are distinct, which is Step 2 again. A candidate who sees the connection writes a coherent answer. A candidate who has memorised five rules writes five disconnected paragraphs and misses the allocation that ties them together.

8. Practice question 1: a bundled sale needing Step 2 and Step 4

Model answer

Step 2: identifying the performance obligations. IFRS 15.22 requires each promise to transfer a distinct good or service to be identified as a performance obligation. There are three promises: the analyser, the installation and the service plan.

All three are capable of being distinct under IFRS 15.27(a). The analyser is sold separately for 1,000,000. Installation is sold separately by Company A for 120,000 and by three independent firms, so the customer can benefit from it together with the analyser, which IFRS 15.28 confirms is a readily available resource because it is transferred under the same contract. The service plan benefits the customer together with the analyser on the same reasoning.

All three are separately identifiable under IFRS 15.27(b), because none of the IFRS 15.29 factors is present. There is no significant integration service producing a combined output, so IFRS 15.29(a) does not apply: the analyser functions as specified without the service plan and the installation is a standard procedure. Nothing significantly modifies or customises anything else, so IFRS 15.29(b) does not apply. The three are not highly interdependent or highly interrelated within the meaning of IFRS 15.29(c), because Company A could deliver a working analyser without providing either the installation or the service plan, and a third party could provide either without affecting the analyser. Three performance obligations.

Step 4: allocating the transaction price. The transaction price under IFRS 15.47 is 1,200,000, fixed, with no variable element under IFRS 15.48(a) and no significant financing component, because payment is made at the point of transfer of the analyser. IFRS 15.74 requires allocation on a relative stand-alone selling price basis. The finance director has allocated at the prices stated in the contract, which IFRS 15.77 expressly prohibits presuming to be stand-alone selling prices: a contractually stated price "may be (but shall not be presumed to be) the stand-alone selling price of that good or service".

Stand-alone selling prices are determined as follows. The analyser and the installation have directly observable prices under IFRS 15.76, of 1,000,000 and 120,000. The service plan has none, so it is estimated under IFRS 15.78 and 15.79(b) using the expected cost plus a margin approach at 380,000. The residual approach in IFRS 15.79(c) is not available and is not needed, because the price of the service plan is neither highly variable nor uncertain within the meaning of IFRS 15.79(c)(i) and (ii), and IFRS 15.78 requires observable inputs to be maximised in any event.

The stand-alone selling prices total 1,500,000 against a transaction price of 1,200,000, so the customer receives a bundle discount of 300,000. IFRS 15.81 requires that discount to be allocated proportionately to all three performance obligations unless the entity has observable evidence meeting all three conditions in IFRS 15.82, which the scenario does not provide. The relative allocation above achieves that proportionate result. The arithmetic: 1,000,000 divided by 1,500,000 is 0.6667, times 1,200,000 is 800,000; 120,000 divided by 1,500,000 is 0.08, times 1,200,000 is 96,000; the balance of 304,000 goes to the service plan, and 800,000 plus 96,000 plus 304,000 equals 1,200,000.

Step 5: timing. The analyser is satisfied at a point in time. None of the IFRS 15.35 criteria is met: the hospital does not simultaneously receive and consume the benefits as Company A manufactures, so 15.35(a) fails; the hospital does not control the analyser as it is created, so 15.35(b) fails; and the analyser is a standard product with an alternative use to Company A, so the first limb of 15.35(c) fails. Control transfers on delivery, supported by the IFRS 15.38 indicators of physical possession, legal title and a present right to payment. Revenue of 800,000 is recognised on 1 October 20X5.

Installation is satisfied at the point commissioning is complete on 1 October 20X5, so 96,000 is recognised in the year. The service plan meets IFRS 15.35(a): scheduled maintenance is a routine and recurring service of the kind described in IFRS 15.B3, the hospital simultaneously receives and consumes the benefit, and another provider taking over would not need substantially to re-perform the work already done. It is therefore satisfied over time. Time elapsed is an appropriate output measure under IFRS 15.B15 because the promise is to stand ready over three years. Three months of the thirty-six month term have elapsed at 31 December 20X5, giving 304,000 multiplied by 3 divided by 36, which is 25,333.

Revenue for the year ended 31 December 20X5 is 800,000 plus 96,000 plus 25,333, which is 921,333. The contract liability carried forward is 1,200,000 less 921,333, which is 278,667, presented under IFRS 15.106 as a contract liability and split between current and non-current. The current portion is twelve months of service revenue, 304,000 multiplied by 12 divided by 36, which is 101,333, leaving 177,334 as non-current. Those two figures sum to 278,667.

Where the marks are won and lost

The finance director's figure of 1,108,333 is 1,050,000 plus 50,000 plus 8,333. The difference of 187,000 arises entirely from allocating at contract prices rather than at relative stand-alone selling prices. Because the service plan was under-priced in the contract relative to its stand-alone selling price, allocating at stated prices pulled 187,000 of service revenue forward into 20X5.

Four things earn the marks here and none of them is the arithmetic. First, working both limbs of IFRS 15.27 rather than asserting that three obligations exist. Second, naming each IFRS 15.29 factor and saying it is absent, which takes one sentence each. Third, quoting the parenthesis in IFRS 15.77, which is the paragraph that disposes of the director's method in a single line. Fourth, saying what the error does to the financial statements in figures, because a requirement to "evaluate" is asking for the effect, not just the rule. The point of comparison for the whole allocation topic is set out in the pillar guide to the five step model.

9. Practice question 2: a performance bonus and a volume rebate

Model answer, part (a)

Identify the variability. The bonus is variable consideration. IFRS 15.51 confirms that consideration varies where an amount is "promised as a performance bonus on achievement of a specified milestone", and IFRS 15.48(a) requires the effect to be considered in determining the transaction price.

Choose the method. There are two possible outcomes only: the system is certified within 60 days and the bonus is earned, or it is not. IFRS 15.53(b) states that the most likely amount "may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes (for example, an entity either achieves a performance bonus or does not)". The most likely amount is therefore the method that better predicts entitlement, and the estimate is 1,000,000 or nil, not a proportion of the bonus.

The directors' figure of 750,000 is wrong twice over. It applies expected value to a binary outcome, which IFRS 15.53(a) reserves for situations where the entity "has a large number of contracts with similar characteristics", and four contracts is not such a population. And it produces an amount that Company B can never be entitled to, since the contract pays either 1,000,000 or nothing.

Apply the constraint. IFRS 15.56 permits inclusion of the estimate only to the extent that it is highly probable that a significant reversal of cumulative revenue will not occur. Three of the IFRS 15.57 factors point against inclusion. IFRS 15.57(a): the amount is highly susceptible to factors outside the entity's influence, since certification turns on "the judgement or actions of third parties", here a regulator. IFRS 15.57(c): Company B's experience with similar contracts is limited and, more importantly, has limited predictive value, because the four earlier contracts were certified by a different regulator in a different jurisdiction with an established process. IFRS 15.57(b): the uncertainty will not resolve until 60 days after a handover expected in 20X7.

Conclusion. The estimate under IFRS 15.53(b) is 1,000,000. The amount included in the transaction price under IFRS 15.56 is nil. The transaction price is 8,000,000. IFRS 15.59 then requires the estimate and the constrained amount to be updated at each reporting date, so if the new regulator establishes a track record before handover, some or all of the bonus may enter the transaction price at that point, with the catch-up recognised in accordance with IFRS 15.87 and 15.88.

Model answer, part (b)

Choose the method. The rebate has three possible outcomes across a range of volumes, and Company C has run identical schemes with more than forty distributors over eight years. IFRS 15.53(a) states that expected value "may be an appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics". Expected value is the appropriate method.

Apply it to the price, not to the revenue. The expected value is used to estimate the consideration to which Company C will be entitled for the units it has actually transferred. The probability weighting is applied to the price per unit, and the resulting price is then applied to the 9,000 units delivered to date.

The expected price per unit is 90.75. Revenue for the 9,000 units transferred is 9,000 multiplied by 90.75, which is 816,750. The distributor has been invoiced 9,000 multiplied by 100, which is 900,000. The difference of 83,250 is consideration received to which Company C does not expect to be entitled, and IFRS 15.55 requires a refund liability: "An entity shall recognise a refund liability if the entity receives consideration from a customer and expects to refund some or all of that consideration to the customer. A refund liability is measured at the amount of consideration received (or receivable) for which the entity does not expect to be entitled." Check the arithmetic: 816,750 plus 83,250 equals 900,000.

Apply the constraint. IFRS 15.56 must still be run. The population is large and homogeneous, the scheme has operated for eight years across more than forty distributors, and forecasting has been reliable, so none of the IFRS 15.57 factors bites. In particular IFRS 15.57(c) is not engaged, because the entity's experience with similar contracts is extensive and has predictive value. The full expected value of 90.75 per unit passes the constraint. Had the scenario said this was a new scheme with no history, IFRS 15.57(c) would have applied and the transaction price would have been constrained, most likely to 85 per unit, being the amount whose non-reversal is highly probable across all three outcomes.

Where the marks are won and lost

In part (a) the marks are in the method choice and in the constraint, in that order. A script that identifies most likely amount under IFRS 15.53(b), states the estimate as 1,000,000, and then constrains it to nil citing IFRS 15.57(a) and (c) with the facts attached has captured almost everything available. A script that goes straight to nil because "the outcome is uncertain" has skipped both the method and the paragraph and will collect a fraction of it. The requirement said "explain your reasoning with reference to IFRS 15", which is the examiner telling you where the marks are.

In part (b) the marks are in the mechanic. Recognising that the weighting attaches to the price and not to the revenue is the point of the question, and the refund liability under IFRS 15.55 is the second point. Note also that the retrospective rebate means the liability relates to units already sold, so it is a refund liability rather than a contract liability, and IFRS 15.55 says so expressly. Presenting it as deferred revenue is a presentation error. The same distinction is developed in the contract assets and liabilities article, and the estimation mechanics in the variable consideration article.

10. Practice question 3: a construction contract, the 15.35(c) test and a cost-to-cost schedule

Model answer

Step 2, briefly. Design, fabrication and commissioning are not separately identifiable. IFRS 15.29(a) is present: Company D provides a significant service of integrating the individual promises into a combined output, the working module for which the customer has contracted. IFRS 15.29(b) is also present, because the design significantly customises the fabricated unit. Under IFRS 15.30 the promises are combined into a single performance obligation. Step 4 does not arise, and IFRS 15.75 confirms that paragraphs 76 to 86 do not apply where the contract has one performance obligation.

Step 5, the over time test. Take the three IFRS 15.35 criteria in order and say why each does or does not apply. This is where the analysis marks sit.

IFRS 15.35(a) is not met. The customer does not simultaneously receive and consume the benefits of Company D's performance. Fabrication is taking place at Company D's yard, and applying the test in IFRS 15.B4, another contractor taking over would need substantially to re-perform very little, but that is not the same as the customer consuming benefits as performance occurs. Nothing is transferred to the customer during fabrication.

IFRS 15.35(b) is not met. The module is being built at Company D's yard, not on the customer's site, and the customer does not control the work in progress as it is created or enhanced.

IFRS 15.35(c) is met, and both limbs must be evidenced. On the first limb, the module has no alternative use to Company D. IFRS 15.36 treats an asset as having no alternative use where the entity is "either restricted contractually from readily directing the asset for another use during the creation or enhancement of that asset or limited practically from readily directing the asset in its completed state for another use". Both apply here: the contract prohibits redirection during construction, and IFRS 15.B8 explains that a practical limitation exists where the entity would incur significant costs to rework the asset or could only sell it at a significant loss, which is Company D's engineering assessment. On the second limb, Company D has an enforceable right to payment for performance completed to date. The termination clause pays costs incurred plus an 8 per cent margin. IFRS 15.B9 requires an amount that "approximates the selling price of the goods or services transferred to date (for example, recovery of the costs incurred by an entity in satisfying the performance obligation plus a reasonable profit margin)". It adds that "compensation for a reasonable profit margin need not equal the profit margin expected if the contract was fulfilled as promised". The 8 per cent margin is therefore sufficient even though the contract margin is 20 per cent.

Conclusion on timing. The performance obligation is satisfied over time under IFRS 15.35(c). Note that the answer names the criterion and evidences both of its limbs. A conclusion of "over time because the customer benefits as construction progresses" would be both unsupported and, on these facts, an assertion of criterion (a), which is the criterion that fails.

Measuring progress. IFRS 15.39 requires progress to be measured towards complete satisfaction of the obligation. Company D uses a cost-based input method under IFRS 15.B18, which is appropriate for a fabrication contract where costs are incurred broadly in proportion to the work performed. IFRS 15.B19(a) requires an adjustment where a cost incurred does not contribute to progress, giving as its example "costs incurred that are attributable to significant inefficiencies in the entity's performance that were not reflected in the price of the contract (for example, the costs of unexpected amounts of wasted materials, labour or other resources...)". The 200,000 of rectification cost for Company D's own fabrication error is exactly that. It is excluded from the measure of progress, both from costs incurred and from total expected costs, and it is expensed as incurred.

Check the arithmetic. 5,800,000 divided by 16,000,000 is 0.3625. 0.3625 multiplied by 20,000,000 is 7,250,000. Revenue of 7,250,000 less total costs charged of 6,000,000 gives 1,250,000. As a sense check, 36.25 per cent of the contract's expected profit of 4,000,000, being 20,000,000 less 16,000,000, is 1,450,000, and the difference of 200,000 is the rectification cost that has been expensed without a matching revenue credit. The two reconcile.

Statement of financial position at 31 December 20X5. The contract asset is 7,250,000 less 5,000,000 billed, which is 2,250,000. IFRS 15.107 governs the presentation: "If an entity performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the entity shall present the contract as a contract asset, excluding any amounts presented as a receivable." Trade receivables are 5,000,000 billed less 4,500,000 received, which is 500,000, and IFRS 15.105 requires unconditional rights to consideration to be presented separately as a receivable. The two must not be combined. IFRS 15.107 also requires the contract asset to be assessed for impairment under IFRS 9.

Where the marks are won and lost

The finance director's figure of 7,407,407 is 6,000,000 divided by 16,200,000, applied to 20,000,000. It overstates revenue by 157,407 and it makes the same error twice: it leaves the abnormal rectification cost in the numerator, which inflates apparent progress, and it adds the same cost to the denominator, which understates it, so the two errors partially cancel and the result looks plausible. IFRS 15.B19(a) requires the cost to come out of both. Saying that the director's method rewards the entity with additional revenue for its own inefficiency is the sentence that shows you understand why the paragraph exists.

Three habits earn the analysis marks in this question. Work all three IFRS 15.35 criteria and say why each fails or holds, rather than jumping to the one that works. Evidence both limbs of IFRS 15.35(c) separately, since each carries its own paragraph, IFRS 15.36 and IFRS 15.37 with IFRS 15.B9. And present the contract asset and the receivable separately, because IFRS 15.105 and 15.107 require it and because a single net figure is a presentation error that is easy for a marker to spot. Fuller treatment of the timing question sits in the over time versus point in time article, and of the balance sheet mechanics in the contract assets and liabilities article.

11. Practice question 4: a right of return and a contract modification

Model answer, part (a)

The right of return is variable consideration, not a separate performance obligation. IFRS 15.B22 is explicit: the promise to stand ready to accept a returned product "shall not be accounted for as a performance obligation in addition to the obligation to provide a refund". IFRS 15.51 confirms that consideration is variable where "a product was sold with a right of return", and IFRS 15.B23 routes the measurement through IFRS 15.47 to 15.72, including the constraint.

Estimate the returns. Company E has six years of data across several hundred thousand units, which is the large homogeneous population contemplated by IFRS 15.53(a), so expected value is the appropriate method. The estimate is a 6 per cent return rate, or 300 units of the 5,000 sold. Running the constraint in IFRS 15.56, none of the IFRS 15.57 factors is engaged: the rate depends on consumer behaviour rather than on third party judgement, it resolves within 90 days, and the entity's experience is extensive and predictive. The full estimate is included.

The four legs. IFRS 15.B21 requires recognition of revenue for the units expected to be retained, a refund liability for the rest, and "an asset (and corresponding adjustment to cost of sales) for its right to recover products from customers on settling the refund liability". That is four lines in the journal, and the accountant's entry has two of them.

Check the arithmetic. 5,000 units less 6 per cent is 4,700 units, at 200 each is 940,000. The 300 units expected to be returned at 200 each is 60,000, and 940,000 plus 60,000 is 1,000,000, the amount invoiced. On the cost side, 5,000 units at 120 is 600,000 of inventory relieved. The return asset is measured under IFRS 15.B25 "by reference to the former carrying amount of the product... less any expected costs to recover those products (including potential decreases in the value to the entity of returned products)", so 120 less 4 less 6 is 110 per unit, and 300 units at 110 is 33,000. Cost of sales is the balance, 600,000 less 33,000, which is 567,000, and 567,000 plus 33,000 is 600,000. Gross profit is 940,000 less 567,000, which is 373,000. As a sense check, 4,700 units at a margin of 80 is 376,000, less the 3,000 of expected handling costs and value decline on the 300 returning units, which is 373,000.

Presentation. IFRS 15.B25 requires the entity to "present the asset separately from the refund liability". A single net figure of 27,000 is a presentation error even though the amounts arise from the same transaction. IFRS 15.B24 then requires both the refund liability and, under the same paragraph, the entity's assessment of amounts to which it expects to be entitled, to be updated at each reporting date, with the adjustment recognised as revenue or as a reduction of revenue.

Model answer, part (b)

Is there a modification? Yes. IFRS 15.18 defines a contract modification as "a change in the scope or price (or both) of a contract that is approved by the parties to the contract", and both scope and price have changed by agreement.

Test IFRS 15.20 first. Both conditions must be present for separate contract treatment. Condition (a) is met: the scope increases by 40 additional machines, each of which is distinct under IFRS 15.27, since the machines are identical, sold separately, and none of the IFRS 15.29 factors applies. Condition (b) is not met. It requires the price to increase "by an amount of consideration that reflects the entity's stand-alone selling prices of the additional promised goods or services and any appropriate adjustments to that price to reflect the circumstances of the particular contract". The additional price of 7,000 is 26 per cent below the stand-alone selling price of 9,500. IFRS 15.20 permits an adjustment for circumstances such as the selling costs the entity avoids by not having to win a new customer, but a discount of 2,500 per machine is a commercial concession made under competitive pressure, not an avoided selling cost. Condition (b) fails, so the modification is not a separate contract.

Route through IFRS 15.21. The remaining goods are the 40 undelivered machines from the original order plus the 40 additional machines, 80 in total. They are distinct from the 60 machines already transferred. IFRS 15.21(a) therefore applies: the modification is accounted for "as if it were a termination of the existing contract and the creation of a new contract". IFRS 15.21(a) sets the consideration to be allocated to the remaining performance obligations as the sum of "(i) the consideration promised by the customer (including amounts already received from the customer) that was included in the estimate of the transaction price and that had not been recognised as revenue; and (ii) the consideration promised as part of the contract modification".

Revenue on the 60 machines already delivered is not restated. It remains 600,000, and IFRS 15.21(a) is a prospective treatment for exactly that reason. Total revenue across the whole arrangement is 600,000 plus 680,000, which is 1,280,000, and this agrees to the total consideration of 100 machines at 10,000 plus 40 machines at 7,000, which is 1,000,000 plus 280,000, or 1,280,000. No revenue was recognised in the quarter to 31 December 20X6 because no machines were delivered in it.

Where the marks are won and lost

Part (a) is won by producing four journal legs rather than two. The return asset and the cost of sales adjustment are in the text of IFRS 15.B21(c) itself, so omitting them is not an oversight of detail, it is a failure to read the paragraph. The measurement of the return asset under IFRS 15.B25 is a second, separate mark, because most candidates who do recognise the asset measure it at full cost and miss the deduction for recovery costs and expected value decline. The presentation requirement, that the asset is shown separately from the refund liability, is a third.

Part (b) is won by testing IFRS 15.20 before IFRS 15.21, and by saying which condition fails and why. A script that concludes "not a separate contract because the price is discounted" has the right answer with no reasoning. A script that quotes the "appropriate adjustments to that price to reflect the circumstances of the particular contract" wording and explains why a competitive concession is not such an adjustment has the reasoning. From there the arithmetic is one line, and checking that total revenue agrees to total consideration is a free integrity check the marker can see. The routing is worked at greater length in the contract modifications article, and the returns mechanics in the warranties, returns and customer options article.

12. How should a revenue answer be structured, and what happens when ethics is attached to it?

The four move structure for a critique requirement

"The director proposes to..." is the most common framing for a revenue issue in a scenario, and it tells you the answer needs a comparison, not a lecture. The four moves are these.

Two disciplines make the four moves work under time pressure. First, use sub-headings taken from the requirement, which is what ACCA's own guidance on Section B recommends, and put each point in a new short paragraph. Second, quote the paragraph rather than the textbook. "IFRS 15.77 states that a contractually stated price may be, but shall not be presumed to be, the stand-alone selling price" is worth more than "the standard says you have to use fair values", because the first is the standard and the second is a recollection of a lecture.

Showing the journal

Where a requirement asks for the accounting treatment and the scenario contains numbers, a journal is usually the fastest way to demonstrate you have understood the whole transaction, and it protects you when a narrative explanation runs out of time. Three rules keep journals from costing marks. Show both sides, because a one-sided entry tells the marker nothing about where the credit went. Label the accounts with the terms the standard uses, so "contract liability" rather than "deferred income" and "refund liability" rather than "provision for returns", since IFRS 15.105 to 15.109 use the first terms and IFRS 15.55 uses the second. And foot the entry. An entry that does not balance invites the marker to check the rest of your arithmetic.

The presentation labels matter more than they look. A refund liability under IFRS 15.55 and a contract liability under IFRS 15.106 are different things: the first is money the entity expects to give back for goods already delivered, the second is an obligation to deliver goods for money already received. Using one label for the other in a script suggests the underlying analysis has not been done. IFRS 15.109 does permit alternative descriptions in the statement of financial position, but requires sufficient information for users to distinguish receivables from contract assets, which is a disclosure permission rather than a licence to blur the categories in an answer.

When ethics is attached to the revenue issue

The SBR syllabus places ethics in section A, requiring candidates to appraise and discuss the importance of ethical and professional behaviour and to assess the consequences of unethical conduct by management. The published exam structure puts a 20 mark question in Section A that requires candidates to consider the reporting implications and the ethical implications of specific events, and awards two professional marks in question two and two in question four. ACCA, Strategic Business Reporting (SBR-INT) syllabus and study guide, September 2025 to June 2026, accaglobal.com. Revenue is a natural vehicle for that pairing, because revenue recognition judgements have a direction and the direction usually favours management.

The structure that works is to answer the reporting question first and completely, then to address the ethics separately. Merging them produces an answer that does neither well, because the reporting marks want paragraph references and the ethics marks want threats, principles and actions.

Three things make an ethics answer specific rather than generic. Name the fundamental principle at issue from the ACCA Code of Ethics and Conduct, which sets out integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Name the threat and tie it to a fact in the scenario, so "self-interest, because the directors' bonus depends on the revenue figure" rather than "there is a self-interest threat". And state an action, in escalating order, because a conclusion that the accountant "should act ethically" is not an action. Escalate internally, seek to have the treatment corrected, document the position, obtain advice, and consider resignation only as a last resort where the matter cannot be resolved.

Time and proportion

A revenue issue inside a scenario is usually worth fewer marks than the amount you could write about it. The discipline is to spend the words in proportion to the requirement. If the requirement is worth ten marks and revenue is one of two issues, five marks of writing is roughly a page, which is four or five short paragraphs. That is enough for the four moves plus a journal. It is not enough for a recital of the five step model, which is why the recital has to go.

A practical order of work on a revenue issue under time pressure: read the requirement first and note what verb it uses, evaluate or explain or calculate; scan the scenario for the planted fact, which is usually a termination clause, a bonus, a discount against stand-alone selling price, or a payment received in advance; write the conclusion; support it with the paragraph; quantify; and stop. If a second issue is present, move to it rather than perfecting the first. Incomplete coverage of the requirement is the failure mode ACCA's own Section B guidance identifies, and it is a much bigger risk than an imperfect explanation of an issue you have already answered.

My view: the most useful revision exercise for revenue in SBR is not working more questions. It is taking a question you have already answered and rewriting your answer to half its length without losing a single paragraph reference or a single figure. What survives that compression is what the marks were for. Everything you cut is what was costing you time in the exam. The pillar guide to the five step model and the industry examples article give further fact patterns to practise the compression on.

Local FAQs

Should I write out the five steps in every revenue answer? No. Use them as a plan for your own thinking and as sub-headings only where the requirement covers the whole model. Where the issue is a single judgement, such as whether a modification is a separate contract, go straight to it. Marks follow the requirement.

Do I lose marks for the wrong paragraph number? A wrong number attached to a correct proposition usually costs credibility rather than a specific mark, but it is a risk you do not need to take. If you are unsure of the number, describe the requirement accurately without a number. If you are sure, use it, because the reference is where the technical mark sits.

How much detail do professional marks need? The professional marks are awarded for the qualities of the answer rather than for its technical content, so clarity, structure, relevance and a sensible use of headings are what earns them. A technically correct answer written as one unbroken block of text is leaving them on the table.

Potential risks

The biggest structural risk in a revenue answer is answering a question that was not asked. A requirement to evaluate the director's treatment is not a requirement to explain IFRS 15, and a page explaining IFRS 15 scores what its application to the scenario earns, which is often very little. The second risk is running out of time on the first issue in a multi-issue requirement, which converts marks you could have had into marks you never attempted. Both risks are solved the same way: read the requirement, allocate the marks across the issues before writing, and stop each issue when its share of the words is spent.