Revenue – ifrs 15 handbook

Example 19 – Determining whether an arrangement has a 
significant financing component: Fixed vs variable payment
Media Company M enters into an arrangement with Television Company C. 
Under the arrangement, C receives rights to show a film five times per year for 
the next five years. C will pay M a fixed amount of 1,000 per year. 
M concludes that the licence is a single right-to-use licence and recognises 
revenue when the copy of the content is transferred to C on commencement of 
the licence period. 
M evaluates whether the arrangement includes a significant financing 
component. As part of its analysis, M determines that it would provide finance 
to C in a separate transaction at 6%. 
M concludes that the arrangement includes a significant financing component 
because of the period between performance and payment and the rate that 
would be applied in a separate financing transaction. M does not identify any 
reasons other than financing for the difference between timing and payment. 
Therefore, M adjusts the transaction price for the effect of the significant 
financing component. 
Conversely, if the consideration under the contract were entirely variable – e.g. 
based on viewer levels when the film is televised – then the arrangement would 
not include a significant financing component. This is because the standard 
states that when a substantial amount of the consideration is variable, the 
arrangement does not include a significant financing component.
Example 20 – Determining whether an arrangement has a 
significant financing component: Instalment payments throughout 
the contract period
Shipbuilder B enters into a contract with Customer C to build a ship for a 
fixed price of 1 million. Under the contract, C will pay the amount in monthly 
instalments throughout the expected production period of three years. B 
determines that it would apply a rate of 3% if it were to enter into a separate 
financing transaction with C. It also determines that revenue will be recognised 
over time, because it has no alternative use for the ship under construction and 
also has a right to payment for it.
B elects to apply the practical expedient and not account for a significant 
financing component when the period between performance and payment is 
12 months or less. 
B determines that the practical expedient applies to the contract because it 
expects the instalment payments to broadly align with performance throughout 
the period. Accordingly, the period between performance and payment is never 
more than 12 months.

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76 | Revenue – IFRS 15 handbook