QUESTION 39 Illustration 39–Consideration payable to a customer An entity that manufactures consumer goods enters into a one-year contract to sell goods to a customer that is a large global chain of retail stores. The customer commits to buy at least $ 15 Million of products during the year. The contract also requires the entity to make a non-refundable payment of $ 1.5 Million to the customer at the inception of the contract. The $ 1.5 Million payment will compensate the customer for the changes it needs to make to its shelving to accommodate the entity's products. The entity does not obtain control of any rights to the customer's shelves. Determine the transaction price.

Solution

According to IFRS 15, the consideration payable to a customer is accounted for as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service that the customer transfers to the entity. In this case, the entity does not obtain control of any rights to the customer's shelves, so the $1.5 million is not for a distinct good or service.

The customer commits to buy at least $15 million of products during the year. However, the contract also requires the entity to make a non-refundable payment of $1.5 million to the customer at the inception of the contract.

Therefore, the transaction price to be recognized by the entity is $13.5 million ($15 million - $1.5 million). The $1.5 million payment is treated as a reduction to the transaction price, as it is consideration payable to the customer.

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