Step 1: Identify the contract with the customer

The contract here is between Airbus and Emirates. The contract works to create enforceable obligations and rights. The parties to the contract approve the agreement, fulfill their obligations, identify payment terms, have identifiable rights, payment is likely to be received, and the contract has commercial value.

Step 2: Identify the performance obligations in the contract

The performance obligation, in this case, will be a promise by Airbus to transfer 50 A380 airplanes to Emirates. In return, Emirates promises Airbus a compensation of $20 billion.

Step 3: Determine the transaction price

The transaction price entails the amount of consideration that an entity is expecting to be entitled for the goods in the contract. It is usually recognized when (or as) the performance obligation is satisfied. Among the items to consider while determining the transaction price is time value for money, variable consideration, and noncash consideration.

Step 4: Allocate the transaction price to the performance obligations in the contract

If the contract involved includes more than one performance, there is the need to allocate the total consideration to each performance obligation based on the relative standalone selling price. In this case, the total consideration is $20 billion.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Airbus will be delivering airplanes to Emirates. Given that this transaction involves the selling of products, revenue is recognized on the date of delivery by Airbus to the Emirates.

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