Revenue – ifrs 15 handbook

13.2.2 
Practical expedient 2 – Exemption from applying variable 
consideration requirements
IFRS 15.C5(b)
Under practical expedient 2, an entity may use the transaction price at the date on 
which the contract was completed, rather than estimating the variable consideration 
amounts in each comparative reporting period.
Example 5 – Applying practical expedient 2: Returned products
Manufacturer X enters into a contract to sell 1,000 products to Customer Y on 
1 September 2016. X also grants Y the right to return any unused product within 
120 days. In November 2016, Y returns 200 unused products.
X considers the application of practical expedient 2 to its contract and 
determines that it can use the final transaction price for the contract. Therefore, 
X recognises revenue for 800 products (being 1,000 products delivered less 
200 products returned) on 1 September 2016, rather than estimating the 
consideration under Step 3 of the model, because the contract was completed 
before the date of initial application.
Example 6 – Applying practical expedient 2: Performance-based fee
Investment Management Company T entered into a 12-month contract to 
manage Fund F’s assets on 1 July 2016. At the end of the contract, T was 
entitled to a performance-based incentive fee of 20% of the fund’s cumulative 
return in excess of an observable market index. When the contract was 
completed on 30 June 2017, T received an incentive fee of 100,000.
Under the new standard, T concludes that it cannot include these types of 
incentives in the transaction price before the contract is completed, because 
they are highly susceptible to volatility in the market and are therefore subject to 
the variable consideration constraint (see 
).
The contract was completed before the date of initial application of the new 
standard of 1 January 2018. T elects to apply the standard retrospectively. T also 
chooses to apply practical expedient 2 and includes the incentive fee of 100,000 
in the transaction price, recognising it as revenue over the contract period.
Without the application of this practical expedient, T would recognise the entire 
fee on completion of the contract – i.e. on 30 June 2017.

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