Revenue – ifrs 15 handbook

Example 7 – Applying the constraint: Investment management 
contract
IFRS 15.IE129–IE133
Investment Manager M enters into a two-year contract to provide investment 
management services to its customer Fund N, a non-registered investment 
partnership. N’s investment objective is to invest in equity instruments issued 
by large listed companies. M receives the following fees payable in cash for 
providing the investment management services.
Quarterly management 
fee
2% per quarter, calculated on the basis of the 
fair value of the net assets at the end of the 
most recent quarter
Performance-based 
incentive fee
20% of the fund’s return in excess of an 
observable market index over the contract 
period
M determines that the contract includes a single performance obligation 
(series of distinct services) that is satisfied over time and that both the 
management fee and the performance fee are variable consideration. Before 
including the estimates of consideration in the transaction price, M considers 
whether the constraint should be applied to either the management fee or the 
performance fee.
At contract inception, M determines that the cumulative amount of 
consideration is constrained because the promised consideration for both 
the management fee and the performance fee is highly susceptible to factors 
outside its own influence. At each subsequent reporting date, M makes the 
following assessment of whether any portion of the consideration continues to 
be constrained.
Quarterly management 
fee
M determines that the cumulative amount of 
consideration from the management fee to 
which it is entitled is not constrained, because 
it is calculated based on asset values at the end 
of each quarter. Therefore, once the quarter 
finishes the consideration for the quarter is 
known. M determines that it can allocate the 
entire amount of the fee to the completed 
quarters, because the fee relates specifically 
to the service provided for those quarters 
(see 
Section 4.2
).

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3 Step 3 – Determine the transaction price | 59
3.1 Variable consideration (and the constraint)
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