ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue
Marlo Co enters a contract to build a facility for $2,000,000. It will earn a bonus of $300,000 if completed by 30 June. Marlo assesses a 70% probability of earning the bonus, but the work depends on weather and regulatory approvals outside its control, with limited experience of similar projects. Under IFRS 15, what is the most appropriate approach to the bonus?
Marlo should include the bonus only to the extent it is highly probable that a significant reversal of cumulative revenue will not occur. External dependencies and limited experience make the constraint likely to restrict it. A 70% probability is insufficient on its own, and the estimate is reassessed each reporting date.
- AInclude the full $300,000 because the probability exceeds 50%
- BInclude the bonus only to the extent that it is highly probable that a significant reversal of cumulative revenue will not occurCorrect
- CInclude $210,000 as the probability-weighted amount in all cases
- DExclude it permanently until the facility is complete, regardless of later evidence
Explanation
Variable consideration is included only to the extent it is highly probable that a significant reversal of cumulative revenue will not occur. Given factors outside Marlo's control and limited experience, the constraint likely restricts the bonus. A 70% probability does not meet the highly probable threshold, and the constraint is reassessed each period, so permanent exclusion is wrong.
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