Revenue – ifrs 15 handbook

Example 21 – Handset trade-in
Telco T enters into a 24-month wireless service contract with Customer C. At 
contract inception, T transfers to C a handset for 600, together with a right to 
trade in that handset for 100 at the end of the service contract. The stand-alone 
selling price of the handset at contract inception is 600. T expects the handset 
market value to be 150 in 24 months.
T’s obligation to repurchase the handset at the customer’s option is a put 
option. T assesses, at contract inception, whether C has a significant economic 
incentive to exercise the put option, to determine the accounting for the 
transfer of the handset.
T concludes that C does not have a significant economic incentive to exercise 
the put option because the repurchase price of 100 is lower than the expected 
market value of 150. Additionally, customers usually have easy access to the 
second-hand market to resell similar phones. T determines that there are no 
other relevant factors to consider when assessing whether C has a significant 
economic incentive to exercise the put option. Consequently, T concludes that 
control of the handset transfers to C because C is not limited in its ability to 
direct the use of, and obtain substantially all of the remaining benefits from, 
the handset. 
T therefore accounts for the transaction as a sale with a right of return (see 
Section 10.1
).
An approach that focuses on the repurchase price
The standard includes guidance on the nature of the repurchase right or 
obligation and the repurchase price relative to the original selling price.
Judgement will be required to determine whether a customer with a put option 
has a significant economic incentive to exercise its right. This determination is 
made at contract inception and is not updated for subsequent changes in asset 
prices. Historical customer behaviour in similar arrangements will be relevant to 
this determination.

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5 Step 5 – Recognise revenue when or as the entity satisfies a performance obligation | 155
5.5 Repurchase agreements
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