Revenue – ifrs 15 handbook

Example 1 – Assessing the existence of a contract: Sale of real 
estate
In an agreement to sell real estate, Seller X assesses the existence of a 
contract. In making this assessment, X considers factors such as:
– the buyer’s available financial resources;
– the buyer’s commitment to the contract, which may be determined based on 
the importance of the property to the buyer’s operations;
– X’s prior experience with similar contracts and buyers under similar 
circumstances; 
– X’s intention to enforce its contractual rights; 
– the payment terms of the arrangement; and
– whether X’s receivable is subject to future subordination.
If X concludes that it is not probable that it will collect the amount to which it 
expects to be entitled, then a contract to transfer control of the real estate does 
not exist. Instead, X applies the guidance on consideration received before 
concluding that a contract exists (see 
Section 1.3
), and initially accounts for any 
cash collected as a deposit (liability).

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1 Step 1 – Identify the contract with a customer | 5
1.1 Criteria to determine whether a contract exists
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Example 2 – Assessing the existence of a contract: No written sales 
agreement
Shoe Manufacturer S holds products available to ship to customers before the 
end of its current fiscal year. Shoe Shop T places an order for the product, and S 
delivers the product before the end of its current fiscal year. 
S generally enters into written sales agreements with this class of customer 
that require the signatures of the authorised representatives of both parties. S 
prepares a written sales agreement and its authorised representative signs the 
agreement before the end of the year. T does not sign the agreement before the 
end of S’s fiscal year. However, T’s purchasing department has orally agreed to 
the purchase and stated that it is highly likely that the contract will be signed in 
the first week of S’s next fiscal year. 
After consulting its legal counsel and obtaining a legal opinion, S determines that 
based on local laws and legal precedent in T’s jurisdiction, T is legally obliged to 
pay for the products shipped to it under the agreement, even though T has not 
yet signed the agreement.
Therefore, S concludes that a contract exists and applies the general 
requirements of the standard to sales made under the agreement up to the 
year end.