D365 Finance and Operations - REVENUE RECOGNITION FEATURE (based on IFRS 15)

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Microsoft, in Oct 2019, released Revenue Recognition feature for Finance module. I’ll give you a brief recap of what it is for and how we use the function in Dynamics 365 Finance and Operations (D365FO)

Before jumping into the features, I’ll explain IFRS 15 in layman’s term (if you want to get more knowledge of IFRS 15 with accounting technical term you can google it). IFRS 15 is new reporting standard to set the new standard replacing the old accounting standard rules:
  • IAS 18 (sale of services, sale of goods, and royalties)
  • IAS 11 (Construction contracts)

IFRS 15, became effective in Jan 2018, is expected to outline a standard rule on how the entity should recognize the revenue on the contracts.

I’ll use the following examples to help me explain how the IFRS 15 works.

Telstra sells a $100 plan/month for 12 months to a customer. The plan comes with a headset.

Prior to IFRS 15, an entity may book (/recognize) the revenue for $100 per month over the period of 12 months. Dead simple.

With the IFRS 15, entity must be able to identify what’s called performance obligation*). In this contract, entity have the obligation to deliver the following services/goods:

  • Headset
  • Mobile services (can be broken down further for Voice service and data services, but we’ll make it simple for this example)
The handset will be transferred to the customer at the beginning of the contract. Therefore, according to this rule the portion of the headset’s revenue headset will be recognized at the beginning of the contract and the portion of mobile services will be recognized every month.

First, we must identify the transaction price of the headset and the mobile services. Transaction price refers to price of the good/service if it is sold individually (some called stand-alone price)

Let’s say the transaction price of the headset is $400 and the transaction price of the mobile services is $50/month ($600 for a year contract). The total of the transaction price for both headset and mobile services is $1000 for a year.

There are $200 differences between the contract price and the transaction price. We’ll address that with allocation.

With this information, we’re set to define the revenue distribution and allocation. Check following formula.




Revenue Recognition feature should address this IFRS 15 rule. Sales order will be used to express the contract. I use the following setup.

Revenue recognition > Setup > Inventory and product setup > Revenue prices




Revenue recognition > Setup > Revenue schedules







Revenue recognition > Setup > General ledger parameters



Sales Order



Open the Revenue Price Allocation from the Sales order form. It should allocate the revenue based on the apportioned of individual transaction price (stand-alone price) like in the attached excel.




Post the invoice, F&O will defer the revenue for Mobile services and fully recognize the revenue for the headset.




Revenue recognition > Periodic tasks > Revenue recognition schedule

You can generate the revenue recognition journal from this table periodically (per month in this case)




Note: This is the simple and straightforward solution to understand the basics of IFRS 15. There are multiple scenarios involving modification of contract, multiple sales order as one contract, discount for the payment, etc, which should be addressed case by case.

*) Performance obligation: A promise in a contract with a customer to transfer a good or service to the customer

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