Revenue – ifrs 15 handbook

Costs in excess of constrained transaction price
IFRS 15.IE110–IE115
In certain circumstances, an up-front loss may arise because the revenue from a 
transaction is constrained or the allocation of transaction price to a performance 
obligation is limited to an amount that is lower than the cost of the goods 
transferred to the customer. In these cases, it is not appropriate for an entity to 
defer the up-front loss unless other specific guidance requires deferral. 
For example, an entity sells goods with a cost basis of 100,000 for stated 
consideration of 120,000. However, the total consideration is subject to a risk 
of price concession in the future. The entity determines that the contract is 
not onerous and a loss accrual is not required under other applicable guidance. 
The entity constrains the transaction price and concludes that 90,000 is 
highly probable of not resulting in a significant revenue reversal. When control 
transfers, the entity recognises revenue of 90,000 and costs of 100,000. This 
accounting entry results in an up-front loss until the uncertainty associated with 
the variable consideration is resolved. For discussion of variable consideration 
and the constraint, see 
Section 3.1
.
Transportation services and costs
In some arrangements, an entity delivers goods to a location specified by its 
customer and incurs transport costs. To determine how to account for these 
costs, an entity considers whether the transportation service is a distinct 
performance obligation (see 
Chapter 2
) and when control of the goods transfers 
to the customer.
If control of the goods transfers to the customer on delivery to the final 
destination – i.e. transport and distribution costs form part of a single 
performance obligation for the sale of goods – then the entity recognises 
revenue when the goods are delivered and applies the guidance in the inventory 
standard on accounting for transport costs (see Chapter 3.8 in our publication 
Insights into IFRS
).

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184 | Revenue – IFRS 15 handbook
If control of the goods transfers to the customer before the goods are 
transported, then this may indicate that the transportation service is a separate 
performance obligation and that the entity needs to determine whether it is a 
principal or an agent in relation to it (see 
Section 10.3
). 
– If the entity acts as a principal for the transportation service, then it 
recognises the gross revenue as the service is provided and applies the 
guidance in the revenue standard on fulfilment costs. 
– If the entity acts as an agent for the transportation service, then it recognises 
the net revenue when the service is arranged.