Overview of Revenue Recognition in the Hospitality Industry under IFRS 15

The International Financial Reporting Standard (IFRS) 15 provides guidelines for recognizing revenue from contracts with customers across various industries, including the hospitality sector. In the hospitality industry, revenue recognition is crucial, given the diverse revenue streams that establishments such as hotels, restaurants, and resorts generate. IFRS 15 focuses on ensuring that revenue is recognized when the entity satisfies a performance obligation by transferring control of promised goods or services to the customer.

Step 2: Identification of Performance Obligations in Hospitality

In the hospitality industry, performance obligations can include room accommodations, food and beverage services, and other ancillary services. Establishments need to identify each distinct performance obligation within a contract. For example, a hotel stay may involve performance obligations related to the room, complimentary breakfast, and access to amenities. Each obligation needs to be evaluated to determine when control is transferred to the customer.

Step 3: Determination of Transaction Price and Recognition Timing

After identifying performance obligations, the next step is determining the transaction price and when to recognize revenue. Transaction price includes the consideration expected to be received in exchange for the promised goods or services. Revenue is recognized when control is transferred. For a hotel, this could be when a guest checks in, starts using room facilities, or consumes food and beverages. The timing of recognition is critical to providing accurate financial reporting and reflecting the value delivered to the customer.

Case Study Question: Based on the information provided, when is revenue typically recognized in the hospitality industry under IFRS 15?

A) At the time of booking a hotel room

B) Upon the guest's arrival and check-in

C) After the guest consumes food and beverages

D) When the hotel invoices the customer

Choose the correct option and provide a brief explanation of your choice.