Revenue – ifrs 15 handbook

Breakage does not constitute variable consideration
IFRS 15.B46
Although an entity considers the variable consideration guidance to determine 
the amount of breakage, breakage itself is not a form of variable consideration 
because it does not affect the transaction price. It is a recognition rather than a 
measurement concept in the standard. For example, the transaction price for a 
sale of a 50 gift card is fixed at 50; the possibility of breakage does not make the 
transaction price variable. However, the expected breakage affects the timing of 
revenue recognition.
Prepaid stored-value products may be financial liabilities
IAS 32.11, IFRS 9, IU 03-16
A prepaid stored-value product is a card with a monetary value stored on the 
card itself – e.g. a gift card. The guidance under the standard on the recognition 
of breakage excludes prepaid stored-value products that meet the definition of 
financial liabilities. 
These are instead accounted for using the applicable guidance under the 
financial instruments standard.
Portfolio of data can be used for estimating expected breakage
An entity can use a portfolio of similar transactions as a source of data to 
estimate expected breakage for an individual contract if the entity has a 
sufficiently large number of similar transactions or other history. Doing so is not 
using the portfolio approach (see 
Section 6.4
).

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
10 Other application issues | 289
10.6 Non-refundable up-front fees
| 
10.6 
Non-refundable up-front fees
Overview
Some contracts include non-refundable up-front fees that are paid at or near 
contract inception – e.g. joining fees for health club membership, activation fees 
for telecommunication contracts and set-up fees for outsourcing contracts. The 
standard provides guidance on determining the timing of recognition for these fees.
IFRS 15.B40, B48–B51
An entity assesses whether the non-refundable up-front fee relates to the transfer 
of a promised good or service to the customer. 
In many cases, even though a non-refundable up-front fee relates to an activity 
that the entity is required to undertake to fulfil the contract, that activity does not 
result in the transfer of a promised good or service to the customer. Instead, it is an 
administrative task. For further discussion on identifying performance obligations, 
see 
Chapter 2
.
If the activity does not result in the transfer of a promised good or service to the 
customer, then the up-front fee is an advance payment for performance obligations 
to be satisfied in the future and is recognised as revenue when those future goods 
or services are provided. 
If the up-front fee gives rise to a material right for future goods or services, then the entity 
attributes all of it to the goods and services to be transferred, including the material 
right associated with the up-front payment. For further discussion on allocating the 
transaction price and customer options, see 
Chapter 4
and 
Section 10.4
, respectively.
IFRS 15.BC387
The non-refundable up-front fee results in a contract that includes a customer 
option that is a material right if it would probably impact the customer’s decision on 
whether to exercise the option to continue buying the entity’s product or service 
(e.g. to renew a membership or service contract or order an additional product).
No
Yes
Recognise allocated
consideration as revenue on
transfer of promised good
or service
Recognise as revenue
when control of future
goods or services is
transferred, which may include
future contract periods