CERTYNEX IFRS ACADEMY

Ormeau manages a securities portfolio for a customer over 3 years. It receives a fixed fee of 400,000 per year and a performance fee equal to 20% of the positive difference between the portfolio's performance and a stock market index, computed at the end of the 3 years. According to management's simulations, this fee may range from 0 to 900,000; no minimum amount can be regarded as highly probable, and Ormeau's history for this type of mandate has little predictive value (case data). At contract inception, which treatment of the performance fee is most consistent with the constraint?

Include the expected value of the fee, i.e. 300,000 according to management's weighted simulations.

Include the fixed fee only and exclude, at this stage, the performance fee.

Recognise no revenue at all, fixed or variable, before the end of the 3 years.

Include half of the maximum, i.e. 450,000, as a prudent measure.