Revenue – ifrs 15 handbook

Expected value method – No need to quantify less probable 
outcomes
IFRS 15.BC201
When using a probability-weighted method to estimate the transaction price, 
a limited number of discrete outcomes and probabilities can often provide a 
reasonable estimate of the distribution of possible outcomes. Therefore, it may 
not be necessary for an entity to quantify all possible outcomes using complex 
models and techniques.
Expected value method – Estimated amount does not need to be 
a possible outcome for an individual contract
When an entity has a population of similar transactions, it may be appropriate 
to use this portfolio of data to estimate the transaction price for an individual 
contract using the expected value method. In this case, the transaction price 
may be an amount that is not a possible outcome for an individual contract but 
that is still representative of the expected transaction price. 
It is important for an entity to have a sufficiently large number of similar 
transactions to conclude that the expected value method is the best estimate 
of the transaction price. Using a portfolio of data to help in estimating the 
transaction price for a contract is not the same as applying the portfolio approach 
(see 
Section 6.4
).
An entity uses judgement to determine whether:
– its contracts with customers are sufficiently similar;
– the contracts with customers from which the expected value is derived are 
expected to remain consistent with subsequent contracts; and
– the volume of similar contracts is sufficient to develop an expected value.
For example, if there are three possible outcomes for the transaction price, then 
the entity calculates an expected value as follows.
Transaction price
Probability
Weighting
100,000
30%
30,000
110,000
45%
49,500
130,000
25%
32,500