Allocating a discount and variable consideration

Learning objectives

• Determine whether a discount is to be allocated to all performance obligations or entirely to some of them, according to the conditions in the standard.L3, L4
• Allocate variable consideration entirely to one performance obligation (or to a distinct good in a series) when both criteria in the standard are met, and allocate the remainder.L3, L4

Normative references

• IFRS 15 §81A discount exists when the sum of the stand-alone selling prices exceeds the promised consideration. Unless there is observable evidence, in accordance with para. 82, that the discount relates to only some of the performance obligations, it is allocated proportionately to all of the obligations in the contract.
• IFRS 15 §82The discount is allocated entirely to one or more, but not all, performance obligations if: the entity regularly sells each good or service (or bundle) on a stand-alone basis; it also regularly sells on a stand-alone basis a bundle of some of those items at a discount; and that discount is substantially the same as the discount in the contract, the analysis providing observable evidence of the obligation to which it belongs.
• IFRS 15 §83When a discount is allocated entirely to some obligations in accordance with para. 82, the entity allocates it before using the residual approach to estimate a stand-alone selling price.
• IFRS 15 §84Variable consideration may be attributable to the entire contract or to a specific part of it: one or more performance obligations, or one or more distinct goods or services in a series that forms a single obligation.
• IFRS 15 §85A variable amount (and subsequent changes in that amount) is allocated entirely to a performance obligation or to a distinct good or service in a series if: the terms of the variable payment relate specifically to the entity's efforts or to a specific outcome of that item; and such allocation is consistent with the objective in para. 73, considering all of the obligations and payment terms.
• IFRS 15 §86The remainder of the transaction price that does not meet the criteria in para. 85 is allocated in accordance with paragraphs 73 to 83.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

11 questions

• A contract includes a discount when the sum of the stand-alone selling prices of the promised goods or services exceeds the promised consideration; unless there is observable evidence to the contrary, that discount is allocated proportionately to all the performance obligations in the contract.L2
• Brumaire sells three products A, B and C in a single contract for {contract_price}. It regularly sells each of them separately, at {ssp_a}, {ssp_b} and {ssp_c} respectively, but never sells a bundle of some of these products at a discount. Each product is a distinct performance obligation. Compute the amount of the discount and the transaction price allocated to product C.L3
• The digital agency Pervenche offers a craftsman the creation of a website and its hosting for two years for a package price of {package_price}. Sold separately, hosting is charged {ssp_hosting} and website creation {ssp_website}, which are their stand-alone selling prices. Nothing indicates that the reduction concerns one of the two performance obligations rather than the other. Compute the discount and the transaction price allocated to the website creation.L3
• Givrane sells three products X, Y and Z for {contract_price}, each being a distinct performance obligation. It regularly sells each product separately: X at {ssp_x}, Y at {ssp_y} and Z at {ssp_z}. It also regularly sells the bundle Y + Z at a price of {bundle_yz_price}. Compute the transaction price allocated to product X and that allocated to Y and Z together.L4
• The furniture maker Ardoisine receives an order from a school for {order_price} covering desks, chairs and cabinets, three distinct performance obligations. Ardoisine commonly sells each category separately, at stand-alone selling prices of {ssp_desks} for the desks, {ssp_chairs} for the chairs and {ssp_cabinets} for the cabinets. It also permanently offers, and regularly sells, a chairs + cabinets package at {pack_price}. Determine the transaction price allocated to the desks and that allocated to the chairs and cabinets together.L4
• Lunesse wishes to allocate an entire discount to two of the four performance obligations in a contract. Which conditions must be met?L4
• Fennelor sells three items A, B and C, distinct performance obligations, for 100,000. A and B are regularly sold on their own, at 40,000 and 30,000, and regularly together at 60,000; the conditions for allocating that discount of 10,000 to the bundle A + B alone are met (case data). The stand-alone selling price of C, sold to different customers for highly variable amounts, is estimated using the residual approach. What is the estimated stand-alone selling price of C?L4
• Maraudine signs a contract for office cleaning and lift maintenance services, two performance obligations. A variable bonus relates to the lift maintenance alone. Which statement is correct?L3
• Eskelor has allocated a variable bonus entirely to one of the performance obligations in a contract, the conditions set by the standard being met (case data). The remainder of the transaction price, which does not meet those conditions, is allocated using the general allocation requirements, including those on discounts.L3
• Corbières Logiciels undertakes to develop a customised management module for the customer Vinéa and to train its users, two performance obligations. The fixed price is 260,000, plus a bonus of 20,000 if the module is delivered before 30 September 20X1. Corbières Logiciels has included the bonus in the transaction price after assessing the constraint (judgement, case datum). The bonus depends solely on the efforts devoted to the module, and allocating it entirely to the module depicts the amount to which Corbières Logiciels expects to be entitled for that module (documented analysis). How is the bonus allocated?L3
• Nébias Médical sold a hospital an imaging system (obligation satisfied in 20X1, allocated price of 300,000) and an operating support service for 2 years (allocated price of 100,000). A bonus depends on the availability rate achieved through the support service. In 20X2, the estimate of the bonus increases by 12,000. Nébias Médical has established that the payment terms of the bonus relate specifically to its support efforts and that allocating it entirely to the support is consistent with the allocation objective (documented analysis). How is the increase of 12,000 allocated?L3