Revenue – ifrs 15 handbook

Performance-based 
incentive fee
M determines that the full amount of the 
performance fee is constrained and therefore 
excluded from the transaction price. This is 
because:
– the performance fee has a high variability 
of possible consideration amounts and the 
magnitude of any downward adjustment 
could be significant;
– although M has experience with similar 
contracts, that experience is not predictive 
of the outcome of the current contract 
because the amount of consideration is 
highly susceptible to volatility in the market 
based on the nature of the assets under 
management; and
– there are a large number of possible 
outcomes.
As a result, M determines that the revenue recognised during the reporting 
period is limited to the quarterly management fees for completed quarters. This 
determination is made each reporting date and could change towards the end of 
the contract period.
Example 8 – Applying the constraint: Success fee
Bank B enters into a contract with Customer E to help it with an equity 
placement. Under the contract, in addition to a fixed amount B will receive a 
bonus of 1 million if the placement is successful.
Outcome
Bonus
Probability
Successful
1 million
75%
Unsuccessful
-
25%
Because there are only two possible outcomes related to the bonus under the 
contract, B determines that using the most likely amount provides the best 
prediction of the amount of consideration to which it will be entitled. Therefore, 
using the most likely amount method, B estimates the variable consideration 
that it expects to be entitled to as 1 million.
B also applies the constraint to evaluate whether it is limited in the amount of 
this estimate that it can include in the transaction price. As part of evaluating 
the application of the constraint, B considers the magnitude of the variable 
amount and the likelihood of a reversal. Although B has a lot of experience with 
these arrangements, the payment is highly susceptible to market volatility, 
which is outside the control of both B and E. B therefore concludes that the 
variable consideration should be constrained to zero until the equity placement 
is undertaken. 

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60 | Revenue – IFRS 15 handbook
A similar evaluation would be required for success-based fees related to other 
types of advisory arrangements – e.g. mergers and acquisitions and debt 
restructurings.