QUESTION 47 Variable consideration — determining a minimum amount Service Inc contracts with Manufacture Co to refurbish Manufacture Co’s heating, ventilation, and air conditioning (HVAC) system. Manufacture Co pays Service Inc fixed consideration of $ 200,000 plus an additional $ 5,000 for every 10% reduction in annual costs during the first year following the refurbishment. Service Inc estimates that it will be able to reduce Manufacture Co’s costs by 20%. Service Inc, however, considers the constraint on variable consideration and concludes that it is probable (US GAAP) or highly probable (IFRS) that estimating a 10% reduction in costs will not result in a significant reversal of cumulative revenue recognized. This assessment is based on Service Inc’s experience achieving at least that level of cost reduction in comparable contracts. Service Inc has achieved levels of 20% or above, but not consistently. How should Service Inc determine the transaction price?