Revenue – ifrs 15 handbook

Example 4 – Framework agreement: No specified minimum 
purchases
Manufacturer X enters into a framework agreement with Customer Z for the 
sale of widgets. The agreement sets out the general terms including pricing, 
warranty, return rights and ordering protocols. It does not include any minimum 
purchase requirements. 
In this example, X determines that the framework agreement does not give 
rise to a contract because it does not create enforceable rights and obligations. 
Further, it determines that a contract exists for goods only once they are 
delivered because purchase orders are cancellable at any time before this point.
Example 5 – Framework agreement: Specified minimum purchases
Manufacturer X enters into a framework agreement with Customer Z for the 
sale of widgets. The agreement sets out the general terms including pricing, 
warranty, return rights and ordering protocols. In addition, it specifies that X will 
deliver 1,000 units on the first day of each month for one year.
X determines that the framework agreement gives rise to a contract because 
it creates enforceable rights and obligations with respect to 1,000 units to be 
delivered on the first day of each month.
Minimum purchase requirements
IFRS 15.9, 12
Some framework agreements may include a requirement for the customer to 
purchase a minimum quantity of goods or services. Such a requirement may 
be a cumulative minimum for the agreement period or for periods within the 
framework agreement – e.g. each year of a multi-year framework agreement. 
If the minimum is enforceable, then the framework agreement itself may 
constitute a contract. However, if the entity’s past practice of not enforcing the 
minimum in the framework agreement results in a conclusion that, based on all 
of the facts and circumstances, the minimum is not legally enforceable, then 
the framework agreement would not be a contract. 
In addition, if relevant experience with the customer suggests that the 
customer will not meet the required minimum and that the entity will not seek 
to enforce it, then this would typically demonstrate in the case of a framework 
agreement that the entity and the customer are not committed to the minimum 
in the framework agreement. Consequently, even if the minimum is legally 
enforceable, the contract may not meet all of the contract existence criteria, in 
which case it would not be a contract.

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1 Step 1 – Identify the contract with a customer | 13
1.1 Criteria to determine whether a contract exists
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