Revenue – ifrs 15 handbook

Example 11 – Pharmaceutical company: Allocating variable 
consideration to multiple performance obligations
Company X enters into a contract with Customer C for two IP licences 
(Licences E and F). X determines that the promises to transfer the licences 
represent two distinct performance obligations, each of which is satisfied at a 
point in time. The prices stated in the contract are as follows: 
– Licence E: a fixed fee of 2,000; and
– Licence F: 3% of C’s future sales of products that use that licence. 
X estimates that its sales-based royalties (i.e. the total variable consideration) 
will be 1,500. The stand-alone selling prices of E and F are 1,800 and 1,700, 
respectively. 
X determines that the royalty relates directly to F and that allocating all of the 
variable consideration to F is consistent with the allocation objective. Therefore, 
it allocates the total variable consideration of 1,500 entirely to F.
X allocates the fixed consideration as follows:
– 1,800
1
to E; and 
– 200
1
to F. 

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4 Step 4 – Allocate the transaction price to the performance obligations in the contract | 111
4.3 Changes in the transaction price
| 
Note
1. In this example, the entire variable consideration is allocated to F and the fixed 
consideration is allocated to E in an amount equal its stand-alone selling price. The 
remaining amount of fixed consideration of 200 (2,000 - 1,800) is allocated to F.
4.3
Changes in the transaction price
IFRS 15.87–90
After contract inception, the transaction price may change for various reasons – 
including the resolution of uncertain events or other changes in circumstances that 
affect the amount of consideration to which an entity expects to be entitled.
In most cases, these changes are allocated to performance obligations on the same 
basis as at contract inception; however, changes in the transaction price resulting 
from a contract modification are accounted for under the standard’s contract 
modifications guidance (see 
Chapter 8
). If a change in the transaction price occurs 
after a contract modification, then it is allocated to the performance obligations 
in the modified contract – i.e. those that were unsatisfied or partially unsatisfied 
immediately after the modification – unless the:
– change is attributable to an amount of variable consideration that was promised 
before the modification; and
– modification was accounted for as a termination of the existing contract and 
creation of a new contract.
IFRS 15.89
A change in the transaction price is allocated to one or more distinct goods or 
services only if specified criteria are met (see 
4.2.2
). 
IFRS 15.88
Any portion of a change in transaction price that is allocated to a satisfied 
performance obligation is recognised as revenue – or as a reduction in revenue – in 
the period of the transaction price change.