Revenue – ifrs 15 handbook

Units purchased
Per-unit rebate
Probability
0–100,000
10%
40%
100,001–1,000,000
20%
50%
1,000,001+
30%
10%
After considering all relevant facts and circumstances, M determines that 
the expected value method provides the best prediction of the amount of 
consideration to which it will be entitled. As a result, it estimates the amount of 
the rebate to be 17% – i.e. (10% × 40%) + (20% × 50%) + (30% × 10%). 
Therefore, M estimates the transaction price at 8.3 (10 × (1 - 0.17)) per unit 
before it considers the constraint (see 
3.1.2
).
Example 6 – Estimate of variable consideration: Most likely 
amount: One-tier rebate
Food Company F enters into an arrangement with Customer C to supply 
Product P. The arrangement includes a fixed price of 1.0 per unit and an annual 
retrospective rebate – i.e. if total sales in an annual period exceed 500, then C is 
entitled to a rebate of 0.1 on every item purchased in that year. 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. F considers the effect of the rebate 
arrangement and determines that, because the rebate arrangement is a 
retrospective arrangement, the contract includes variable consideration.
Therefore, in determining the transaction price for the sale of 100 units, F needs 
to incorporate any expected rebate. F uses the most likely amount method to 
estimate the amount because there are only two possible prices: C will pay 
either 1 per unit or 0.9 per unit. If the rebate included multiple tiers, then the 
expected value approach would probably be a more appropriate method to 
estimate the variable consideration.

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3 Step 3 – Determine the transaction price | 57
3.1 Variable consideration (and the constraint)
| 
F assesses the likelihood of selling more than 500 units to C using historical 
sales data for C and other similar customers and forecast sales based on current 
market conditions. F determines that it is 80% likely that C will purchase more 
than 500 units and, therefore, that the expected price per unit is 0.90. 
F estimates the transaction price to be 90 (see 
3.1.2
).
Conversely, if the rebate applied prospectively – e.g. if F’s total sales to C were 
1,000 such that C received a rebate of 0.10 × 500 – then the rebate arrangement 
would be evaluated to determine whether it represented a material right (see 
Section 10.4
).