Revenue – ifrs 15 handbook

Payment in
advance
t-12 months
t+12 months
Payment in
arrears
Performance
t
0
Interest
expense
Interest
income
Significant financing component?
IFRS 15.65
The financing component is recognised as interest expense (when the customer 
pays in advance), or interest income or revenue (when the customer pays in 
arrears), and is presented separately from revenue from contracts with customers.
If after contract inception there is a change in the expected period between 
customer payment and the transfer of goods or services, then it appears that 
the transaction price – i.e. the promised amount of consideration adjusted for 
the significant financing component – should not be revised for the effect of the 
change in the expected period between payment and performance. Instead, an 
entity should revise the period over which it recognises the difference between 
the transaction price and the promised consideration as interest. This is because 
the cash selling price of the goods or services is agreed by the parties at contract 
inception and does not vary in response to changes in the estimated timing of 
the transfer of the goods or services. If the entity had used the revised timing 
at inception of the contract, then this would have changed either the amount of 
promised consideration or the implied interest rate.
Example 13 – Significant financing component: Multiple-element 
arrangement
Product Company B enters into a contract with Customer C to deliver 
Products X and Y for 150,000 payable up-front. X will be delivered in two years 
and Y in five years.
B determines that the contract contains two performance obligations that 
are satisfied at the points in time at which the products are delivered to C. B 
allocates the 150,000 to X and Y at an amount of 37,500 and 112,500 respectively 
– i.e. based on their relative stand-alone selling prices. B concludes that the 
contract contains a significant financing component and that a financing rate of 
6% is appropriate based on B’s credit-standing at contract inception.

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66 | Revenue – IFRS 15 handbook
B accounts for the contract as follows.