Determining the transaction price

Learning objectives

• Explain that the transaction price is the amount of consideration to which the entity expects to be entitled, excluding amounts collected on behalf of third parties (sales taxes, for example), assuming that the contract will be fulfilled as agreed.L1, L2
• Calculate a transaction price incorporating the effects of variable consideration, a financing component, non-cash consideration and consideration payable to the customer.L2, L3

Normative references

• IFRS 15 §46When (or as) a performance obligation is satisfied, the entity recognises as revenue the amount of the transaction price allocated to that obligation. That price excludes estimates of variable consideration that are constrained in accordance with paragraphs 56 to 58.
• IFRS 15 §47To determine the transaction price, the entity considers the terms of the contract and its customary business practices. The transaction price is the amount of consideration to which the entity expects to be entitled in exchange for the promised goods or services, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration may include fixed amounts, variable amounts, or both.
• IFRS 15 §48The nature, timing and amount of the promised consideration affect the estimate of the transaction price. The entity must therefore consider variable consideration and its constraint, the existence of a significant financing component, non-cash consideration and consideration payable to the customer.
• IFRS 15 §49To determine the transaction price, the entity assumes that the goods or services will be transferred as promised under the existing contract and that the contract will not be cancelled, renewed or modified.

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

17 questions

• In what order does the five-step teaching approach apply the core principle of IFRS 15?L1
• Ambrel sells a set of furniture to a customer. The invoice amounts to 12,000, including 2,000 of sales tax that Ambrel collects on behalf of the State (case datum). What is the transaction price?L1
• The transaction price is always equal to the price stated in the contract signed with the customer.L2
• Value added tax invoiced to the customer and collected on behalf of the State is part of the transaction price.L1
• To determine the transaction price, the entity assumes that the goods or services will be transferred as promised under the existing contract and that the contract will not be cancelled, renewed or modified.L1
• Mobilis usually invoices its customers at the contract price but, under a practice known to all, systematically grants a year-end discount. To determine the transaction price, Mobilis must consider only the written terms of the contract, excluding its business practices.L2
• What is the transaction price under IFRS 15?L1
• Datalys enters into a 3-year services contract for EUR 90,000 per year. Based on its history, it considers it very likely that the customer will renew the contract for 2 additional years at the same price. What transaction price does it use at contract inception?L2
• When a performance obligation is satisfied, what amount does the entity recognise as revenue?L2
• Which of the following must the entity take into account to determine the transaction price?L2
• Hôtelia organises a residential seminar for a corporate customer. Its invoice includes: accommodation, room hire, VAT collected for the State, the tourist tax collected on behalf of the municipality and the meals served by Hôtelia. Which of these amounts are excluded from Hôtelia's transaction price?L3
• Ébénis delivers furniture to a hotel. Its invoice amounts to EUR {amount_incl_tax} including taxes, of which VAT at {vat_rate}% collected on behalf of the State. No other consideration is provided for. Compute the transaction price.L2
• The Valrose estate hosts the annual conference of a trade federation and sends it a total invoice of EUR {total_billed}. This total includes VAT of EUR {vat_amount} collected for the State and a tourist tax of EUR {tourist_tax} collected on behalf of the municipality; the balance remunerates the accommodation and catering provided by Valrose. Compute Valrose's transaction price.L2
• Ingénova designs a production line for a customer for a fixed price of EUR {fixed_fee}. A bonus of EUR {bonus} will be due if the line is delivered before an agreed date; only two outcomes are possible. Ingénova estimates the bonus using the most likely amount, which is earning the bonus, and concludes, based on its judgement, that it is highly probable that including it will not result in a significant reversal of cumulative revenue. The contract also provides that Ingénova pays the customer EUR {payment_to_customer} as a contribution to fitting out its premises, without receiving any distinct good or service in exchange. Compute the transaction price.L3
• Brasselin sells a batch of professional ovens to a restaurant chain. In exchange, the chain pays EUR {cash_price} and transfers to Brasselin a commercial vehicle with a fair value of EUR {vehicle_fair_value}. Under the same contract, Brasselin grants the chain a credit note of EUR {credit_granted} that can be applied against its next invoices, without receiving any distinct good or service in exchange. Compute the transaction price.L3
• Vitralis delivers glazing to a property developer, which obtains control on delivery. The developer will pay EUR {amount_due} in {payment_delay} years. Vitralis concludes, based on its judgement, that this payment schedule provides the customer with a significant benefit of financing; the rate that would be used in a separate financing transaction between the parties is {financing_rate}% per year (case data). Compute the transaction price, i.e. the amount the developer would have paid in cash on delivery.L3
• During an industrial maintenance contract, Orvanel observes several events. Which of them may change the transaction price?L3