Revenue – ifrs 15 handbook

Impairment assessment of contract assets when the 
consideration is variable
IFRS 15.56–58, 107, 113(b)
When a contract includes variable consideration, an entity recognises revenue 
at the constrained amount (see 
3.1.2
). As a result, any related contract asset 
is measured based on the constrained amount. In these cases, a question 
arises over whether the impairment assessment of the contract asset should 
be performed based on the constrained or the unconstrained amount of the 
related consideration.
It appears that the impairment assessment of the contract asset should 
be performed based on the constrained consideration because under this 
approach the expected cash flows are estimated on a basis consistent with the 
measurement of the contract asset. 

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302 | Revenue – IFRS 15 handbook
We believe that an alternative approach would be to compare the theoretical 
unconstrained contract asset with the unconstrained consideration, and 
recognise any resulting impairment loss in proportion to the recognised contract 
asset. This would result in the same impairment loss amount as the approach 
based on the constrained amounts.
For a detailed illustration, see 
Example 2
 in this chapter.
Classification as current vs non-current
IAS 1.60–61, 65–71
An entity applies the general principles for presenting assets and liabilities as 
current or non-current in the statement of financial position to contract assets, 
contract liabilities and costs to obtain and costs to fulfil a contract arising under 
the standard. In applying these principles, an entity considers the expected 
timing of performance, payment or utilisation under the contract.
As a first step, an entity considers whether an asset or a liability arising under 
the standard is expected to be realised or settled within the entity’s operating 
cycle. If it is, then it is classified as current. To determine its operating cycle, the 
entity considers the time between the acquisition of assets for processing and 
their realisation in cash or cash equivalents. It is the ultimate realisation in cash 
that matters for the analysis, rather than a change in the nature of the item – e.g. 
a contract asset becoming a trade receivable.
If an entity has different operating cycles for different parts of the business – 
e.g. retail and construction – then the classification of an asset as current is 
based on the normal operating cycle that is relevant to that particular asset. In 
our view, the entity need not identify a single operating cycle.
If an asset is realised or a liability is settled beyond an entity’s operating cycle, 
then to determine the appropriate classification in the statement of financial 
position the entity considers the nature of that asset or liability and applies the 
existing guidance for similar assets or liabilities. In determining the appropriate 
classification, the entity considers whether:
– the entire item should be presented as current or non-current; or 
– it should be split into current and non-current components. 
The nature of contract assets, contract liabilities and costs to obtain or costs to 
fulfil a contract may differ under different contracts. An entity needs to consider 
all facts and circumstances in determining the nature of the item. 

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© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
11 Presentation | 303
11.1 Statement of financial position
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An example of the analysis is included in the table below.