Revenue – ifrs 15 handbook

Example 3 – Collectability threshold: Assessment based on goods 
or services to be transferred
Company C contracts with Customer D to sell 1,000 units for a fixed price of 
1 million. D has a poor payment history and often seeks price adjustments after 
receiving orders and so C assesses that it is probable that it will collect only 
70% of the amounts due under the contract. 
Based on its assessment of the facts and circumstances, C expects to 
provide an implicit price concession and accept 70% of the fixed price from 
D. When assessing whether collectability is probable, C assesses whether it 
expects to receive 700,000, which is the amount after the expected implicit 
price concession. 
On subsequent reassessment, if C expects to collect more than 700,000, 
then it recognises the excess as revenue. If C subsequently assesses that it 
will collect less than 700,000, then C recognises the shortfall as a bad debt 
expense, which is measured using the guidance on impairment of receivables. 
However, if C determined that it had granted an additional price concession, 
then the shortfall would be a reduction in transaction price and revenue.

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6 | Revenue – IFRS 15 handbook
Assessment focuses on enforceability, not form of the contract
IFRS 15.BC32
The assessment of whether a contract exists for the purpose of applying the 
standard focuses on the enforceability of rights and obligations based on 
the relevant laws, legal precedent and regulations, rather than the form of 
the contract (oral, implied or written). This may require significant judgement 
in some jurisdictions or for some arrangements, and may result in different 
assessments for similar contracts in different jurisdictions. In cases of 
significant uncertainty about enforceability, a written contract and legal 
interpretation by qualified counsel may be required to support a conclusion 
that the parties to the contract have approved and are committed to performing 
under the contract.
However, although the contract has to create enforceable rights and obligations, 
some of the promises in the contract to deliver a good or service to the 
customer may be considered performance obligations even though they are not 
legally enforceable (see 
Chapter 2
).