Revenue – ifrs 15 handbook

Example 1 – Sale of a single-property real estate
IFRS 3, 10, IAS 40
Consulting Company X decides to sell an office building to Buyer Y. X owns the 
building through a wholly owned subsidiary whose only asset is the building. 
The transaction is outside its ordinary consulting activities.
Title transfers to Y at closing and X has no continuing involvement in 
the operations of the property, including through a leaseback, property 
management services or seller-provided financing.
The arrangement consideration includes a fixed amount paid in cash at closing 
plus an additional 5% contingent on obtaining a permit to re-zone the property 
as a commercial property. X believes that there is a 50% chance that the re-
zoning effort will be successful.
When the sale is undertaken as a sale of the subsidiary X applies the 
deconsolidation guidance in the consolidation standard and measures the 
contract consideration at fair value.
Conversely, when the sale is undertaken as an asset sale, X applies the 
derecognition guidance in the property, plant and equipment standard and 
as part of determining the gain or loss from the transaction measures the 
consideration to be received in accordance with the requirements set out in 
Step 3 of the model.
Judgement required to identify ordinary activities
IFRS 15.BC53
Under the standard, a ‘customer’ is defined as a party that has contracted with 
an entity to obtain goods or services that are an output of the entity’s ordinary 
activities in exchange for consideration. Because ‘ordinary activities’ is not 
defined, evaluating whether the asset transferred is an output of the entity’s 
ordinary activities may require judgement.
In many cases, this judgement will be informed by the classification of a non-
financial asset – e.g. an entity that purchases a tangible asset may assess on 
initial recognition whether to classify the asset as property, plant and equipment 
or as inventory. Typically, the sale or transfer of an item that is classified as 
property, plant and equipment will result in a gain or loss that is presented 
outside revenue, whereas the sale or transfer of inventory will result in the 
recognition of revenue.

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10 Other application issues | 297
10.7 Sales outside ordinary activities
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