Step 3 Determine transaction price
7.1 The transaction price is the amount of consideration to which an entity expects to receive in exchange for transferring promised goods or services to a customer. It excludes amounts collected on behalf of third parties (e.g. VAT/GST)
7.2 The transaction price includes:
– fixed consideration
– variable consideration (for example, rebates or bonuses) using either a probability-weighted expected value or the most likely amount
– significant financing component – the impact of the time value of money
– the fair value of any non-cash consideration, and
– the effect of any amounts payable to the customer.
7.3 (IFRS 15) FRS 115 Revenue from Contracts with Customers deals with the uncertainty relating to variable consideration by limiting the amount of variable consideration that can be recognised. Specifically, variable consideration is only included in the transaction price if and to the extent that, it is highly probable that its inclusion will not result in a significant revenue reversal in the future when the uncertainty has been subsequently resolved.
7.4 Significant financing component
(a) The transaction price must be adjusted for the effects of the time value of money if the timing of payments agreed to by the parties provides the customer or the entity with a significant benefit of financing.
(b) An exception is where the interval between transfer of the promised goods or services and payment by the customer is expected to be less than 12 months.
(c) An entity recognise revenues at an amount that reflects the price if the customer had paid cash for those goods or services when (or as) they transfer to the customer (i.e. the cash selling price).
7.5 Non-cash consideration
(a) Any non-cash consideration expected from the customer must be measured at fair value.
(b) If no reasonable estimate, measure the consideration indirectly by reference to the stand-alone selling price of the goods or services promised to the customer in exchange for the consideration.
Last review: 31 October 2017