Revenue – ifrs 15 handbook

Collectability is only a gating question
IFRS 15.9
Under the revenue standard, the collectability criterion is included as a gating 
question designed to prevent entities from applying the revenue model to 
problematic contracts and recognising revenue and a large impairment loss at 
the same time. The collectability criteria are likely to be met for many routine 
customer contracts.
Collectability is assessed based on the amount that the entity 
expects to receive in exchange for goods or services
The collectability threshold is applied to the amount to which the entity expects 
to be entitled in exchange for the goods and services that will be transferred 
to the customer, which may not be the stated contract price. The assessment 
considers:
– the entity’s legal rights;
– past practice;
– how the entity intends to manage its exposure to credit risk throughout the 
contract; and
– the customer’s ability and intention to pay. 
The collectability assessment is limited to the consideration attributable to the 
goods or services to be transferred to the customer for the non-cancellable 
term of the contract. For example, if a contract has a two-year term but either 
party can terminate it after one year without penalty, then an entity assesses 
the collectability of the consideration promised in the first year of the contract 
(i.e. the non-cancellable term of the contract).

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1 Step 1 – Identify the contract with a customer | 7
1.1 Criteria to determine whether a contract exists
| 
Judgement is required to differentiate between a collectability 
issue and a price concession
IFRS 15.52, IE7–IE13, BC45
Judgement is required in evaluating whether the likelihood that an entity will 
not receive the full amount of stated consideration in a contract gives rise to a 
collectability issue or a price concession.
The standard includes two examples of implicit price concessions: a life 
science prescription drug sale (Example 2 in the standard) and a transaction to 
provide health care services to an uninsured (self-pay) patient (Example 3 in 
the standard). In both examples, the entity concludes that the transaction price 
is not the stated price or standard rate and that the promised consideration is 
variable. Consequently, an entity may need to determine the transaction price 
in Step 3 of the model (see 
Chapter 3
), including any price concessions, before 
concluding on the collectability criterion in Step 1 of the model.