Revenue – ifrs 15 handbook

party becomes obliged to supply the awards, by analogy to the principle for 
recognising revenue in the standard. In 
Example 12B
 in this chapter, this occurs 
when a customer chooses to redeem its awards from the third party in 2019.
10.5 
Customers’ unexercised rights (breakage)
Overview
An entity may receive a non-refundable prepayment from a customer that gives 
the customer the right to receive goods or services in the future. Common 
examples include gift cards, vouchers and non-refundable tickets. Typically, 
some customers do not exercise their right – this is referred to as ‘breakage’.
IFRS 15.B44–B45
An entity recognises a prepayment received from a customer as a contract liability 
and recognises revenue when the promised goods or services are transferred 
in the future. However, a portion of the contract liability recognised may relate 
to contractual rights that the entity does not expect to be exercised – i.e. a 
breakage amount.
IFRS 15.B46
The timing of revenue recognition related to breakage depends on whether the 
entity expects to be entitled to a breakage amount – i.e. if it is highly probable 
that recognising breakage will not result in a significant reversal of the cumulative 
revenue recognised.

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286 | Revenue – IFRS 15 handbook
Recognise in proportion
to the pattern of rights
exercised by the
customer
Recognise when the
likelihood of the customer
exercising its remaining
rights becomes remote
No
Yes
Expect to be entitled to a
breakage amount?
When the expectation changes
IFRS 15.B46
An entity considers the variable consideration guidance to determine whether – 
and to what extent – the constraint applies (see 
3.1.2
). It determines the amount 
of breakage to which it is entitled as the amount for which it is considered highly 
probable that a significant reversal will not occur in the future. This amount is 
recognised as revenue in proportion to the pattern of rights exercised by the 
customer (proportional method) when the entity expects to be entitled to breakage. 
Otherwise, the entity recognises breakage when the likelihood of the customer 
exercising its remaining rights becomes remote (remote method).
IFRS 15.B47
If an entity is required to remit to a government entity an amount that is attributable 
to customers’ unexercised rights – e.g. under applicable unclaimed property 
or escheatment laws – then it recognises a financial liability until the rights are 
extinguished, rather than revenue.