How to approach it
- Combine contracts negotiated as a package; identify the performance obligations.
- Allocate the total price by relative stand-alone selling prices.
- Payments to a customer that are not for a distinct good or service reduce the transaction price as related revenue is recognised.
- An option to buy at a discount the customer would not otherwise get is a material right: allocate part of the price to it and recognise as the option is used or expires. Discounts available to everyone are not.
- For each part: explain, then give dated journal entries with workings.
Key rules to apply
- IFRS 15: combine contracts entered into at or near the same time with the same customer if negotiated as a package.
- Allocate on relative stand-alone selling prices, not on contract prices.
- Consideration payable to a customer reduces revenue unless it buys a distinct good or service.
- Material rights are separate performance obligations.
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Recognising revenue on receipt of cash or at contract signing (examiners' point).
- Treating a shelf-space payment as an expense, or deducting it all at once.
- Treating a general voucher like a material right, or vice versa.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q9 without copying it.
Original practice question
Three IFRS 15 arrangements
(a) A package of goods (SSP Rs 45m) and two years' support (SSP Rs 15m) is sold for Rs 50m in total; goods delivered and support started on 1 November 2025. (b) The company paid a customer Rs 3m on 1 July 2025 for 12 months of display space; it expects Rs 60m of sales to that customer over the 12 months, Rs 20m of which fell in 2025. (c) A machine (SSP Rs 20m) sold for Rs 20m on 1 October 2025 includes an option to buy up to 500 kits at Rs 6,000 (SSP Rs 10,000); 400 are expected to be bought. 100 were bought by year-end.
Required: Calculate 2025 revenue for each.
Worked solution
| Part | Working | Rs m |
|---|---|---|
| (a) Goods | 50 × 45 ÷ 60 | 37.50 |
| (a) Support allocated | 50 × 15 ÷ 60 = 12.5; 2025: × 2/24 | 1.04 |
| (b) Revenue reduction | 3 × 20 ÷ 60 (rest is a prepayment) | (1.00) |
| (c) Option SSP | 400 × (10,000 − 6,000) = 1.6 | |
| (c) Machine | 20 × 20 ÷ 21.6 | 18.52 |
| (c) Kits | 100 × 6,000 + 1.48 × 100 ÷ 400 | 0.97 |
Answer: (a) Rs 38.54m with Rs 11.46m deferred; (b) revenue reduced by Rs 1m, Rs 2m prepaid; (c) Rs 19.49m with Rs 1.11m of the option still deferred.