Revenue – ifrs 15 handbook

Example 1 – Sale of a prepaid phone card: Entity expects to be 
entitled to breakage
Retailer R sells a prepaid phone card to Customer C for 100. On the basis 
of historical experience with similar prepaid phone cards, R estimates that 
10% of the prepaid phone card balance will remain unredeemed and that 
the unredeemed amount will not be subject to escheatment. Because R can 
reasonably estimate the amount of breakage expected and it is highly probable 
that including the amount in the transaction price will not result in a significant 
revenue reversal, R recognises the breakage revenue of 10 in proportion to the 
pattern of exercise of C’s rights.
Specifically, when it sells the prepaid phone card R recognises a contract liability 
of 100, because C prepaid for a non-refundable card. No breakage revenue is 
recognised at this time.
If C redeems an amount of 45 in 30 days, then half of the expected redemption 
has occurred (45 / (100 - 10) = 50%). Therefore, half of the breakage – i.e. (10 × 
50% = 5) – is also recognised. 
On this initial prepaid phone card redemption, R recognises revenue of 50 – i.e. 
revenue from transferring goods or services of 45 plus breakage of 5.

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10 Other application issues | 287
10.5 Customers’ unexercised rights (breakage)
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Example 2 – Sale of a prepaid phone card: Entity does not expect 
to be entitled to breakage
Retailer C implements a new prepaid phone card programme. C sells Customer 
D a prepaid phone card for 50. C does not have an obligation to remit the value 
of unredeemed cards to any government authority or other entity – i.e. the 
unredeemed amount will not be subject to escheatment. The prepaid phone 
card expires two years from the date of issue. 
Because this is a new programme, C has very little historical information. 
Specifically, C does not have sufficient entity-specific information, nor does 
it have knowledge of the experience of other service providers. Therefore, C 
concludes that it does not have the ability to estimate the amount of breakage 
that, if it were included in the transaction price, would be highly probable of not 
resulting in a significant revenue reversal.
C therefore recognises the breakage when the likelihood of D exercising its 
remaining rights becomes remote. This may occur at expiry of the prepaid 
phone card or earlier if there is evidence to indicate that the probability has 
become remote that D will redeem any remaining amount on the prepaid 
phone card.