Revenue – ifrs 15 handbook

Scenario 2 – Prospective discounts provide a material right 
Modifying Scenario 1, X provides the same prospective price reductions to 
all 
carmakers similar to M – i.e. no carmaker can buy parts for 150 per part before 
buying more than 1,000 parts. 
In evaluating whether the price reduction provides M with a material right, X 
notes that:
– it is not appropriate to compare the pricing with price reductions provided to 
other carmakers because they all receive future discounts as a result of prior 
purchases; and
– the right for reduced prices accumulates and incentivises M to make 
future purchases. This is a qualitative indicator that M pays for the option to 
purchase future parts at a discount on its previous purchases. 
Therefore, in the absence of any other quantitative or qualitative factors 
indicating otherwise, X concludes that the prospective price reduction conveys 
a material right to M.
M places an order for 500 parts in the first year. X expects that M will purchase 
1,200 parts in total – i.e. it will receive a discount on 200 parts. This is based 
on X’s historical experience with framework agreements with similar payment 
mechanisms.
X concludes that M has, in substance, paid for 50% of the right for future 
discounted parts because M purchased 500 of the 1,000 parts required for it to 
be entitled to a price reduction.
X allocates the transaction price between the parts ordered and the material 
right for a future discount on a relative selling price basis as follows.
Performance 
obligation
Stand-alone 
selling 
prices
Selling 
price ratio
Price 
allocation Calculation
Parts
1
100,000
2
95.2%
95,238 (100,000 × 95.2%)
Material right
5,000
3
4.8%
4,762 (100,000 × 4.8%)