Revenue – ifrs 15 handbook

Variable consideration allocation guidance is applied before the 
guidance on allocating discounts
IFRS 15.86
In some cases, a contract may contain both variable consideration and a 
discount. For example, an entity may sell products in a bundle at a discount 
to the aggregate stand-alone selling prices of the products in the bundle. In 
addition, the transaction price may include a variable element.
In these cases, an entity applies the guidance on allocating variable 
consideration before it applies the guidance on allocating discounts. That is, 
the standard includes an allocation hierarchy. When a contract contains both 
variable consideration and a discount, applying the allocation guidance in the 
reverse order may result in an incorrect allocation of the transaction price.
Some contracts contain features that may be variable consideration and/or 
a discount – e.g. a rebate. In these cases, an entity evaluates the nature of 
the feature. If the rebate causes the transaction price to be variable – e.g. the 
amount of the rebate depends on the number of purchases that a customer 
makes – then the entity follows the hierarchy and applies the guidance on 
allocating variable consideration first. Conversely, if a rebate is fixed and not 
contingent – e.g. the rebate is simply a fixed discount against the aggregate 
stand-alone selling prices of the items in a bundle – then an entity applies 
the guidance on allocating discounts and does not consider the guidance on 
allocating variable consideration.

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108 | Revenue – IFRS 15 handbook
Evaluating whether the allocation objective is met when 
allocating variable consideration to a distinct service period in a 
series
In some cases, a contract that contains a series of distinct goods or services 
may include variable consideration. In this situation, an entity needs to 
determine whether variable consideration can be allocated to a distinct time 
increment within a series – e.g. a day, month or year. For the analysis, an entity 
may use the following factors that may indicate that the variable pricing depicts 
the amount of consideration to which the entity would expect to be entitled for 
providing goods or services in each distinct period.
– The variable pricing is based on a per-unit amount or formula and that pricing 
is consistent throughout the contract.
– The entity charges a commensurate price per transaction or per user when it 
charges separately. 
– The consideration is commensurate with the value or benefit to the customer 
– e.g. a hotel management fee that is based on a percentage of daily room 
fees.
– The consideration is commensurate with the entity’s efforts to fulfil the 
service – e.g. reimbursement of variable labour costs.
– The pricing is consistent with the entity’s customary pricing practices.