Revenue – ifrs 15 handbook

Example 5 – Prospective volume rebate: Material right
Food Company F enters into an arrangement with Customer C to supply 
Product A. The arrangement includes a fixed price of 1 per unit and an annual 
rebate. The rebate is paid only for purchases in excess of 501 units. The 
arrangement includes no minimum purchase quantities but F expects that C will 
purchase approximately 1,000 units annually.
Purchases
Rebate
0–500
-
501+
0.10
C makes an initial purchase of 100 units. Because the rebate arrangement is 
prospective, F evaluates whether the sale gives rise to a material right that 
needs to be accounted for as a separate performance obligation. 
F determines that the arrangement contains a material right. Therefore, F 
recognises revenue for the initial purchase net of the amount of consideration 
allocated to the material right liability. F recognises revenue allocated to the 
material right when the right is exercised in the future – i.e. C purchases in 
excess of 501 units.
Alternatively, if it is considered that all of the goods to be delivered are 
substantially the same, then under the alternative approach F may elect to 
recognise revenue at the average price per unit based on total expected 
purchases, rather than calculating the value of the material right – i.e. at 0.95 per 
unit (500 × 1 + 500 × (1 - 0.10)) / 1,000.
Example 6 – Prospective discounts: No material right vs material 
right
Scenario 1 – Prospective discounts do not provide a material right
Automotive Supplier X produces standard, non-customised parts that are used 
by various carmakers. X enters into a two-year framework agreement with 
Carmaker M, a new customer, to manufacture parts for 200 per part. Each part 
is a distinct good that is transferred at a point in time. 
M is committed to purchasing a minimum quantity of 500 parts per year. If M 
purchases more than 1,000 parts, then the price of future purchase orders is 
decreased prospectively to 150 per part. 
X prices parts of a similar size and complexity consistently, based on expected 
annual sales volumes to a specific carmaker:
– carmakers expected to order fewer than 1,000 parts usually pay 200 per part; 
and 
– carmakers expected to order more than 1,000 parts in total usually pay 
150 per part for 
all
purchases. That is, prices usually do not decrease 
prospectively as those carmakers purchase additional volumes.

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10 Other application issues | 273
10.4 Customer options for additional goods or services
| 
X notes that other carmakers could order similar volumes of parts of similar size 
and complexity for a price of 150 without a similar prospective price reduction. 
Therefore, in the absence of any other quantitative or qualitative factors 
indicating otherwise, X concludes that the pricing on future purchases does not 
provide M with a material right.