Revenue – ifrs 15 handbook

Additional steps may be required to create legally enforceable 
rights and obligations
Generally, the purchase order in combination with the framework agreement 
will be evaluated to determine whether the Step 1 criteria are met and a 
contract exists. However, if additional steps must be taken for the purchase 
order to create legally enforceable rights and obligations (e.g. executing a 
supplemental contract or addendum to the framework agreement subsequent 
to receipt of the purchase order), then a contract with a customer will not exist 
until those steps are completed.
Purchase orders under the same framework agreement may be 
inter-related
IFRS 15.BC73
In some cases, pricing among the purchase orders may be inter-related. 
Purchase orders that are issued separately should be evaluated to determine 
whether they affect other purchase orders under the same framework 
agreement. When purchase orders are inter-related, this may result in the 
transaction price for an individual purchase being different from the stated 
contract price. This may occur for a number of reasons. In some cases, 
purchase orders may meet the criteria for combining contracts, whereas in 
other cases the entity will need to consider whether purchase orders give 
rise to implicit or explicit promises that represent a material right in Step 2 or 
variable consideration in Step 3 (e.g. rebate or discount arrangements).
 
Additional application examples
Example 6 – Automotive: Combining nomination letter with 
subsequent purchase orders
On 1 January, Carmaker F approves Automotive Supplier S’s offer to 
manufacture a specialised part for its cars. F’s nomination letter confirms 
that the price of the units ordered in February and March will be 80 and 100 
respectively. F expects to order 50,000 units in each of February and March. To 
place an order, F will submit a purchase order to S.
S notes that neither the nomination letter nor the framework agreement 
contains minimum quantities for F to purchase. It concludes that the nomination 
letter and the framework agreement, on their own, do not create enforceable 
rights and obligations and, therefore, a contract does not exist under the 
revenue standard. 
S identifies each purchase order as a contract under the standard. This 
is because S can identify the payment terms and F’s right to goods from 
the purchase orders together with the framework agreement and the 
nomination letter.

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14 | Revenue – IFRS 15 handbook