Revenue – ifrs 15 handbook

Step (i) – Calculate the remaining consideration
Remaining consideration on original contract not yet recognised 
as revenue
700,000
Change order
100,000
Product X
120,000
Total remaining consideration
920,000
Step (ii) – Allocate the remaining consideration between Products S and X
Z allocates the remaining consideration of 920,000 to S and X under the general 
guidance in Step 4 of the model as follows.
Stand-alone 
selling prices
Percent 
allocated
Allocated 
amounts
Remaining for Product S
900,000
85.7%
788,571
Product X
150,000
14.3%
131,429
Total
1,050,000
100.0%
920,000
Step (iii) – Record a cumulative catch-up adjustment for the partially 
satisfied performance obligation
For the partially satisfied performance obligation (S), Z accounts for the contract 
modification as part of the original contract. Therefore, Z updates its measure of 
progress and estimates that it has satisfied 27.4% of its performance obligation 
after revising its cost-to-cost measure of progress for the revised expected 
costs. As a consequence, Z calculates the following adjustment to reduce 
revenue previously recognised:
1,732 = 27.4% complete × 1,088,571
1
modified transaction price allocable to S - 
300,000 revenue recognised to date. 
When Z transfers control of X, it recognises revenue in the amount of 131,429.
Note
1. Calculated as 300,000 + 788,571.

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204 | Revenue – IFRS 15 handbook
Different approaches for common types of contract modifications
To determine the appropriate accounting, an entity needs to evaluate whether 
the modification adds distinct goods or services and, if so, whether the prices 
of those distinct goods or services are commensurate with their stand-
alone selling prices. This determination will depend on the specific facts 
and circumstances of the contract and the modification, and may require 
significant judgement.
Entities entering into construction-type contracts or project-based service 
contracts (e.g. a service contract with a defined deliverable such as a valuation 
report) may often account for contract modifications on a combined basis with 
the original contract. However, modifications to other types of contracts for 
goods (e.g. a sale of a number of distinct products) or services (e.g. residential 
television or internet services, or hardware/software maintenance services) 
may often result in prospective accounting. For discussion on modifications of 
licences of intellectual property, including renewals and extensions of licences, 
see 
Section 9.4
.