QUESTION 1 A vendor sells 1,000 units of a product to a customer in

QUESTION 1 A vendor sells 1,000 units of a product to a customer in return for a contractually agreed amount of $ 1 million. This is the vendor’s first sale to a customer in the geographic region, and the region is experiencing significant economic difficulty. The vendor believes that economic conditions will improve in future, and that by establishing a trading relationship now with the customer sales volumes in future will be enhanced. However, for this first contract, the vendor does not expect that the customer will be able to pay the full amount of the contractually agreed price. Consequently, the vendor determines that it expects to offer a 50% discount to its customer. Having considered the customer’s intention and ability to pay, taking into account the current poor economic conditions, it is concluded that it is probable that the estimated amount of $ 500,000 will be collected. Is it as per IFRS 15?

ANSWER 1

Yes, it is as per IFRS 15.

According to IFRS 15, a contract does not exist if the parties to the contract do not commit to perform their respective obligations, do not have enforceable rights and obligations, or the entity concludes that collection of the contract consideration is not probable.

In this case, the vendor expects to offer a 50% discount due to the economic conditions in the region and the customer's inability to pay the full amount. Thus, the vendor estimates that the transaction price (the amount to which the vendor expects to be entitled) is $500,000, not the contractually agreed price of $1,000,000. As the vendor concludes that it is probable that it will collect this estimated amount, the criteria for the existence of a contract under IFRS 15 are satisfied.

However, the vendor must reassess the estimate of the transaction price, and the assessment of whether it is probable that the entity will collect the consideration to which it will be entitled, at the end of each reporting period. Any adjustment arising should be recognized as a change in the transaction price

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