Revenue – ifrs 15 handbook

No significant financing component if the timing of transfer of 
goods or services is at the customer’s discretion
IFRS 15.BC233(a)
Customers pay for some types of goods or services in advance – e.g. prepaid 
phone cards, gift cards and customer loyalty points – and the transfer of the 
related goods or services to the customer is at the customer’s discretion. In 
these cases, the contracts do not include a significant financing component, 
because the payment term does not relate to a financing arrangement. 
Also, without this specific guidance the costs of requiring an entity to 
account for the financing component in these situations would outweigh any 
perceived benefits, because the entity could not know – and would therefore 
have to continually estimate – when the goods or services will transfer to 
the customer.
Contracts with a payment scheduled for part-way through 
the performance period may contain a significant financing 
component
Under some long-term contracts for which revenue is recognised over time, the 
payment of the promised consideration may be scheduled for part-way through 
the performance period – e.g. under a 26-month construction contract the 
promised consideration is to be paid in full at the end of Month 13. It appears 
that in these cases, a significant financing component may exist. We believe 
that an entity should assess the contract as a whole and exercise judgement in 
determining whether the financing component is significant.

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3 Step 3 – Determine the transaction price | 71
3.2 Significant financing component
| 
Contracts with material right may contain a significant financing 
component
IFRS 15.62(a)
Contracts under which a customer pays for goods or services in advance and 
has discretion over the timing of their transfer do not contain a significant 
financing component. This may be relevant to contracts with a material right 
if a customer chooses 
when
to exercise that right. However, in some cases 
the customer may not have that discretion. In these cases, the contract may 
contain a significant financing component. The assessment of whether a 
customer has discretion over the timing of the exercise of the material right may 
require judgement.