What is Performance Obligations?
A performance obligation under IFRS 15 is a promise in a customer contract to transfer a distinct good or service. It is the unit of account for revenue recognition under the five-step model.
How It Works
- Identify the contract with the customer.
- Identify each distinct good or service promised in the contract.
- Determine the transaction price.
- Allocate the transaction price to each performance obligation based on stand-alone selling prices.
- Recognise revenue when (or as) each performance obligation is satisfied.
Saudi Context
Saudi listed and large unlisted companies fully apply IFRS 15 under SOCPA. ZATCA requires VAT to follow the same supply-by-supply timing, especially in bundled offerings common in telecom, retail, and software sectors.
Example
A telco sells a 12-month plan with a free smartphone. The transaction price is split between the smartphone (one performance obligation) and the monthly service (a series of distinct obligations) using stand-alone selling prices.