Revenue – ifrs 15 handbook

Price reduction in next six months
Probability
0
70%
50
20%
100
10%
After considering all relevant facts and circumstances, M determines that 
the expected value method provides the best prediction of the amount of 
consideration to which it will be entitled. As a result, it estimates the transaction 
price to be 480 per television – i.e. (500 × 70%) + (450 × 20%) + (400 × 10%) – 
before considering the constraint (see 
3.1.2
).
Example 4 – Estimate of variable consideration: Most likely amount
Construction Company C enters into a contract with Customer E to build an 
asset. Depending on when the asset is completed, C will receive either 110,000 
or 130,000.
Outcome
Consideration
Probability
Project completes on time
130,000
90%
Project is delayed
110,000
10%
Because there are only two possible outcomes under the contract, C 
determines that using the most likely amount provides the best prediction 
of the amount of consideration to which it will be entitled. C estimates the 
transaction price – before it considers the constraint (see 
3.1.2
) – to be 130,000, 
which is the single most likely amount.
All facts and circumstances are considered when selecting 
estimation method
IFRS 15.BC200
The use of a probability-weighted estimate, especially when there are only two 
possible outcomes, could result in revenue being recognised at an amount 
that is not a possible outcome under the contract. In these situations, using 
the most likely amount may be more appropriate. However, all facts and 
circumstances need to be considered when selecting the method that best 
predicts the amount of consideration to which an entity will be entitled.

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
54 | Revenue – IFRS 15 handbook