ACCA Financial Reporting (F7) Practice Exam 2025 – Complete Prep Guide

Under IFRS 15, revenue recognition follows a structured five-step process, which is critical for ensuring consistency and comparability in financial reporting. The correct option outlines this process in its entirety:

1. **Identify the contract**: The first step requires an entity to establish that a contract exists and meets certain criteria such as approval by the parties and the ability to identify rights and payment terms.

2. **Identify performance obligations**: This involves determining distinct goods or services promised within the contract. A performance obligation is fulfilled when the customer obtains control of the good or service.

3. **Determine transaction price**: The next step is to figure out the amount of consideration that the entity expects to receive in exchange for transferring the promised goods or services to the customer.

4. **Allocate the transaction price**: When a contract includes multiple performance obligations, the transaction price must be allocated to each performance obligation based on their relative standalone selling prices.

5. **Recognize revenue**: Finally, revenue is recognized when the entity satisfies a performance obligation, which means when control of the promised good or service is transferred to the customer.

This comprehensive approach ensures that revenue is recognized in a manner that reflects the transfer of control of the goods or services provided, aligning revenue