Revenue – ifrs 15 handbook

 
Additional application examples
Example 9A – Recognising receivables: Compensation on 
termination
On 1 January Year 1, Manufacturing Company X enters into a contract to 
construct a specialised asset for Customer S for 1,000. Under the payment 
terms in the contract, all consideration is payable on completion of construction. 
However, if the contract is terminated by S then X has an enforceable right to 
payment for its performance completed to date. X determines that Criterion 3 
for over-time revenue recognition is met (see 
Section 5.2
).
On 31 March Year 1, construction is 25% complete and X recognises revenue of 
250. We believe that X should recognise a contract asset, and not a receivable, 
of 250. This is because X’s right to payment for performance completed to date 
is conditional on early termination of the contract.

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
312 | Revenue – IFRS 15 handbook
Example 9B – Recognising receivables: Milestone payments
Modifying Example 9A, Manufacturing Company X is entitled to a milestone 
payment of 100 when construction is 25% complete. We believe that on 
31 March Year 1, X should recognise a receivable of 100 and a contract asset of 
150. This is because on that date X has an unconditional right to the milestone 
payment of 100.
Example 10 – Recognising receivables: Variable consideration
On 1 January Year 1, Real Estate Company Y sells a plot of land, which it 
classified as inventory, to Customer C. Under the payment terms in the 
contract, C will pay Y 1,000 on 1 April Year 1. In addition, if C obtains a planning 
permit to redevelop the land, then it will pay an additional 300 to Y. On 1 January 
Year 1, Y determines that it is not highly probable that C will obtain the permit 
and therefore it recognises revenue of 1,000 (see 
3.1.2
).
On 30 June Year 1, C reaches the final stage of the process for receiving the 
planning permit. Therefore, Y determines that it is highly probable that the 
additional consideration will be received and recognises additional revenue 
of 300. On 31 December Year 1, C obtains the permit and the additional 
consideration becomes billable under the payment terms in the contract.
We believe that on 1 January Year 1, Y should recognise a receivable of 1,000 
for the land sold. On 30 June Year 1, Y should recognise revenue of 300 and 
a contract asset. This is because at this date receipt of this amount remains 
conditional on C receiving the planning permit for the land. On 31 December 
Year 1, Y should recognise a receivable of 300 because on that date the 
additional amount becomes fixed.