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ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue

Zeta Co sells equipment to a customer for $500,000 payable in full on delivery. The customer will receive a volume rebate if it buys more than 100 units in the year, and Zeta expects the customer to qualify. Under IFRS 15, how should Zeta treat the expected rebate when determining the transaction price?

Zeta should estimate the expected rebate at contract inception and reduce the transaction price accordingly, then update the estimate at each reporting date. Rebates are variable consideration under IFRS 15, so they reduce revenue rather than being recorded as expenses or contingent liabilities.

  1. AIgnore it until the customer actually qualifies, then recognise a reduction in revenue
  2. BTreat it as a selling expense in profit or loss
  3. CEstimate it at contract inception and reduce the transaction price, updating the estimate at each reporting dateCorrect
  4. DDisclose it as a contingent liability only

Explanation

IFRS 15 requires variable consideration, including rebates, to be estimated and included in the transaction price (subject to the constraint). The estimate is reassessed at each reporting date. Waiting until the customer qualifies would overstate revenue in earlier periods.

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