Revenue – ifrs 15 handbook

Contract modification practical expedient simplifies 
implementation but reduces comparability
The contract modifications practical expedient allows the entity to avoid 
accounting for each contract modification separately, which may significantly 
reduce the burden of applying the new standard to existing contracts. However, 
it also means that those contracts are not fully compliant with the new 
standard, which may reduce comparability in the current and in future years for 
contracts with a long duration.
The impact of applying this practical expedient is similar under the retrospective 
and cumulative effect methods.
13.4 
Consequential amendments to other IFRS 
requirements
The new revenue standard introduces consequential amendments to several 
other standards. For example, it amends the intangible assets standard such that 
the amount of consideration to be used in calculating the gain or loss on disposal 
of an intangible asset is determined under the requirements for determining the 
transaction price in the revenue standard. A question arises over how to apply 
the consequential amendments to other standards on transition to the new 
revenue standard. 
It appears that it would be appropriate to apply consequential amendments in a 
manner that is consistent with the transition method chosen for the new revenue 
standard – i.e. retrospective or cumulative effect method. However, it may also be 
acceptable to apply consequential amendments to other standards retrospectively 
under the general requirements.
Example 13 – Consequential amendments
Miner X holds a licence to explore a site (mining tenement) in Country Z and 
accounts for it as an intangible asset. In 2005, X sells the mining tenement to 
Miner Y. Under the agreement, X receives a royalty calculated as 5% of Y’s sales 
of product mined from the area covered by the mining tenement. 
X applies the new standard from 1 January 2018 and presents one year of 
comparatives in its financial statements.
Under the previous requirements, X recognised this royalty as Y’s sales 
occurred. X determines that under the new revenue standard, this royalty 
represents variable consideration – i.e. the exception for sales-based 
royalties does not apply because it is not a licence of intellectual property. X 
estimates that if it applied the variable consideration guidance to the royalty 
on a retrospective basis, then it would recognise a contract asset of 100 on 
1 January 2017.

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
342 | Revenue – IFRS 15 handbook
We believe that it would be appropriate for X to apply the same transition 
approach to its analysis of the disposal of the mining tenement as it does to 
apply the new revenue standard. For example, if X elects to transition to the 
new revenue standard using the cumulative effect method and has also elected 
to apply the completed contract exemption, then it accounts for the royalty in 
accordance with its existing accounting policy – i.e. as Y’s sales occur.
Alternatively, we believe that X could apply the consequential amendments to 
the intangible assets standard on a retrospective basis and recognise a contract 
asset of 100 at the start of the earliest comparative period presented (i.e. 
1 January 2017) and a corresponding credit to retained earnings.