Revenue – ifrs 15 handbook

Expected value
100%
112,000
Although 112,000 is not a possible outcome, when the conditions are met, the 
expected value is 
appropriate
because the entity is really estimating that 30% 
of the transactions will result in 100,000, 45% of the transactions will result 
in 110,000 and 25% of the transactions will result in 130,000 which, in the 
aggregate, will be representative of the entity’s expectations of the price for 
each transaction.

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3 Step 3 – Determine the transaction price | 55
3.1 Variable consideration (and the constraint)
| 
Historical experience may be a source of evidence
IFRS 15.53, 56, 79(a), BC200
An entity may use a group of similar transactions as a source of evidence when 
estimating variable consideration, particularly under the expected value method. 
The estimates using the expected value method are generally made at the 
contract level, not at the portfolio level. Using a group as a source of evidence in 
this way is not itself an application of the portfolio approach (see 
Section 6.4
).
For example, an entity may enter into a large number of similar contracts 
whose terms include a performance bonus. Depending on the outcome of each 
contract, the entity either will receive a bonus of 100 or will not receive any 
bonus. Based on its historical experience, the entity expects to receive a bonus 
of 100 in 60 percent of the contracts. To estimate the transaction price for future 
individual contracts of this nature, the entity considers its historical experience 
and estimates that the expected value of the bonus is 60. This example 
illustrates that when an entity uses the expected value method, the transaction 
price may be an amount that is not a possible outcome of an individual contract. 
The entity needs to use judgement to determine whether the number of similar 
transactions is sufficient to develop an expected value that is the best estimate 
of the transaction price for the contract and whether the constraint (see 
3.1.2
) 
should be applied.