Revenue – ifrs 15 handbook

Example 1 – Transition: Deferred balance relating to a completed 
contract
In 2017, Company C enters into a framework agreement with Customer B to 
supply widgets. The framework agreement specifies the following volume-
based tiered pricing:
– 1–2,000 items: 5 per item; and 
– over 2,000 items: 4 per item.
There is no stated minimum purchase quantity. Before 31 December 2017, 
B orders and C delivers 1,800 items.
Applying the previous requirements, C estimates that B’s total expected 
purchases under this framework agreement will be 2,500 items – i.e. B will 
qualify for the discount. Therefore, C recognises revenue based on the total 
expected purchases at the average price per item of 4.8 ((5 × 2,000 + 4 × 500) / 
2,500). As a result, C recognises 360 ((5 - 4.8) × 1,800) as deferred revenue in its 
statement of financial position at 31 December 2017.
C applies the new standard in the reporting period beginning on 1 January 2018 
using the cumulative effect method. C determines that each purchase order 
under the framework agreement is a separate contract and the orders fulfilled 
constitute completed contracts at 1 January 2018 because all of the items 
ordered were delivered under the previous requirements.
We believe that C should continue to account for the deferred revenue of 360 in 
accordance with its existing accounting policy – i.e. to recognise it as revenue 
when it grants discounts to B on subsequent sales.

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328 | Revenue – IFRS 15 handbook
13.2 
Retrospective method
IFRS 15.C2(a), C3(a)
Under the retrospective method, an entity is required to restate each period before 
the date of initial application that is presented in the financial statements. The ‘date 
of initial application’ is the start of the reporting period in which an entity first applies 
the standard. For example, if an entity first applies the standard in its financial 
statements for the year ended 31 December 2018, then the date of initial application 
is 1 January 2018. The entity recognises the cumulative effect of applying the 
standard in equity (generally, retained earnings or net assets) at the start of the 
earliest comparative period presented.
IFRS 15.C5
An entity that elects to apply the standard using the retrospective method 
can choose to do so on a full retrospective basis or with one or more practical 
expedients. The practical expedients provide relief from applying the requirements 
of the standard to certain types of contracts in the comparative periods presented.
IFRS 15.C5
There are four optional practical expedients available to an entity that applies the 
retrospective method.