Revenue – ifrs 15 handbook

 
Additional application examples
Example 17 – Automotive supplier: Series of distinct goods
Automotive Supplier S enters into a framework agreement with Carmaker C to 
produce specialised sensors for a fixed price of 200 per sensor. Subsequently, 
C places a non-cancellable purchase order for 1,000 sensors. The framework 
agreement and the purchase order constitute a contract in the scope of 
the standard. 
S concludes that each sensor is capable of being distinct and is distinct in the 
context of the contract because:
– the sensors individually provide a benefit;
– one sensor does not significantly affect, modify or customise another; and
– S does not provide a significant integration service.
S also determines that the contract meets the criteria for the revenue to be 
recognised over time. S concludes that the distinct sensors meet the series 
criteria because:
– all 1,000 sensors are of the same design: i.e. substantially the same;
– they meet the over-time criteria; and
– the measure of progress is the same because each sensor is manufactured 
identically. 
Therefore, the 1,000 sensors are accounted for as a single performance 
obligation for which revenue is recognised over time, with a transaction price 
of 200,000.
S expects to incur significant learning curve costs in the production of the 
first units. Therefore, if S chose a cost-to-cost measure of progress for the 
performance obligation, then revenue recognised for the earlier units produced 
would be more than 200 per sensor and revenue for the later units produced 
would be less than 200 per sensor.
Example 18 – Investment management: Series of distinct services
Investment Management Company S enters into a five-year contract with 
a customer to provide investment management services. S receives a 2% 
quarterly management fee based on the assets under management at the end 
of each quarter. 
S concludes that the individual time increments of service within the five-year 
contract are distinct from each other. Criterion 1 is met because the customer 
can benefit from each time increment of service provided independently 
of the others. Criterion 2 is met because each time increment does not 
significantly modify or customise the others and S is not providing a service of 
combining the time increments together to create a single combined output for 
the customer.

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44 | Revenue – IFRS 15 handbook
S concludes that the distinct time increments meet the series criteria because:
– the services provided in each time increment are substantially the same;
– the services meet the over-time criteria, because the customer consumes 
the benefits of the services as they are provided; and 
– the same method to measure progress would apply to each time increment 
of service – i.e. a time-based measure of progress. 
Therefore, S treats the contract as a single performance obligation.