Revenue – ifrs 15 handbook

Contract 
inception
Recognise a contract liability for the payment of 150,000
Years 1 
and 2
During the two years from contract inception until the transfer 
of X, recognise interest expense of 9,000 and 9,540
1
on 
150,000 at 6% for Years 1 and 2, respectively, for a cumulative 
interest expense of 18,540
Recognise revenue of 42,135
2
for the transfer of X
Years 3, 4 
and 5
Recognise annual interest expense of 7,584, 8,039 and 8,522
3
for Years 3, 4 and 5, respectively, based on the contract liability 
at the beginning of Year 3 of 126,405
4
Recognise revenue of 150,550
5
for the transfer of Y
Notes
1. Calculated as 150,000 × 0.06 for Year 1 and 159.000 × 0.06 for Year 2.
2. Calculated as 37,500 + 4,635, being the initial allocation to X plus X’s portion of the 
interest for Years 1 and 2 of the contract (37,500 / 150,000 × 18,540).
3. Calculated as 126,405 × 0.06 = 7,584; (126,405 + 7,584) × 0.06 = 8,039 and (126,405 + 
7,584 + 8,039) × 0.06 = 8,522.
4. Calculated as 150,000 + 18,540 - 42,135, being the initial contract liability plus interest for 
two years less the amount derecognised from the transfer of X. 
5. Calculated as 126,405 + 24,145, being the contract liability balance after two years plus 
interest for three years.
Example 14 – Significant financing component: Change in expected 
completion date
Company K enters into a contract with Customer C to construct and deliver 
a piece of equipment. K determines that the contract contains a single 
performance obligation that is satisfied at a point in time when the equipment is 
delivered to C. Construction is expected to take two years.
K and C agree consideration of 80, which is payable and paid on the date the 
contract is signed.
At contract inception, K considers the terms of the sale and determines that the 
contract includes a significant financing component because: 
– there is a significant period between payment and delivery of the asset;
– the asset is regularly sold at a higher price; and
– there is no evidence to suggest the advance is for another reason.
K determines the discount rate, based on its credit characteristics, to be 12%.

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3 Step 3 – Determine the transaction price | 67
3.2 Significant financing component
| 
Therefore, to reflect the financing that it is receiving from the advance payment, 
K recognises interest expense of 20 in the construction period and revenue of 
100 (80 × 1.122) on the delivery date. 
After Year 1, K determines that the construction will take three rather than 
two years. 
K should revise the period over which it recognises the difference between the 
transaction price and the promised consideration as interest expense. K should 
not revise the transaction price of 100.