Revenue – ifrs 15 handbook

Inception
Year 1
Year 2
Year 3
Total
Allocated to (A):
Licence
15,000
1
-
-
-
15,000
Upgrade
-
11,667
3
11,667
3
11,667
3
35,000
Cumulative
15,000
26,667
38,333
50,000
N/A
Royalty due (B):
Annual
10,000
2
5,000
4
25,000
5
10,000
6
40,000
Cumulative
10,000
15,000
40,000
50,000
N/A
Lesser of A 
and B
10,000
15,000
38,333
50,000
N/A
Less: 
previously 
recognised
-
(10,000)
(15,000)
(38,333)
N/A
Revenue 
recognised
10,000
5,000
23,333
11,667
50,000
Notes
1. The right-to-use licence is transferred at a point in time. As such, the performance 
obligation is satisfied on transfer and the amount allocated to that performance 
obligation is 15,000. 
2. There is a guaranteed minimum of10,000 in the contract. 
3. 35,000 allocated to the upgrades / 3 years. 
4. 15,000 in royalties earned during Year 1 - 10,000 minimum already recorded. 
5. 25,000 additional royalties earned during Year 2. 
6. 10,000 additional royalties earned during Year 3.

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© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
234 | Revenue – IFRS 15 handbook
10 
Other application issues
10.1 
Sale with a right of return
Overview
Under the standard, when an entity makes a sale with a right of return it 
recognises revenue at the amount to which it expects to be entitled by applying 
the variable consideration and constraint guidance set out in Step 3 of the 
model (see 
Chapter 3
). The entity also recognises a refund liability and an asset 
for any goods or services that it expects to be returned.
IFRS 15.B20
An entity applies the accounting guidance for a sale with a right of return when a 
customer has a right to: 
– a full or partial refund of any consideration paid; 
– a credit that can be applied against amounts owed, or that will be owed, to the 
entity; or
– another product in exchange (unless it is another product of the same type, 
quality, condition and price – e.g. exchanging a red sweater for a white sweater).
IFRS 15.B21–B22
An entity does not account for its stand-ready obligation to accept returns as a 
performance obligation. 
In addition to product returns, the guidance also applies to services that are 
provided subject to a refund.
IFRS 15.B26–B27
The guidance does not apply to:
– exchanges by customers of one product for another of the same type, quality, 
condition and price; and 
– returns of faulty goods or replacements, which are instead evaluated under the 
guidance on warranties (see 
Section 10.2
).

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© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
10 Other application issues | 235
10.1 Sale with a right of return
| 
IFRS 15.B21, B23, B25
When an entity makes a sale with a right of return, it initially recognises the 
following.