Solution

Let's analyze the revenue to be recognized by the entity on 31 March 2018.

1. Management Fee:

The entity receives a 2% quarterly management fee based on the client's assets under management at the end of each quarter. On 31 March 2018, the client's assets under management are $100 million. Therefore, the management fee for this quarter is:

2% of $100 million = $2 million

This fee can be recognized as revenue for the quarter ending 31 March 2018, because it's not subjected to any further performance obligations or uncertainties.

2. Performance Fee:

The entity also receives a performance-based incentive fee of 20% of the fund's return in excess of the return of an observable market index over the five-year period. This fee is highly dependent on the future performance of the fund and the market index, therefore it's a variable consideration.

As of 31 March 2018, the performance fee cannot be recognized as revenue. As per IFRS 15, the entity should only recognize revenue from variable consideration to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

In this case, the performance of the fund over the next four years is uncertain and could potentially lead to a significant reversal of any revenue recognized now. Thus, the entity should not recognize any revenue from the performance fee on 31 March 2018.

So, the total revenue to be recognized by the entity on 31 March 2018 is $2 million, coming entirely from the management fee.