ANSWER 12

According to IFRS 15, revenue is recognized when (or as) a company transfers control of goods or services to a customer at the amount to which the company expects to be entitled.

In this case, the vendor transfers control of the goods to the distributor on 1 January 2018, so it recognizes the revenue at that time, not when the distributor subsequently sells the goods to its own customers.

The total selling price for the 1,000 units is $100,000 ($100 per unit times 1,000 units). However, the vendor needs to consider whether it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Since payment is due when the distributor sells the goods, there is a variable consideration. The vendor should estimate the variable consideration, including taking into account the possibility of returns.

If the vendor estimates that it is highly probable that a significant revenue reversal will not occur (perhaps based on past experience with similar contracts), then it recognizes the full $100,000 as revenue on 1 January 2018.

However, if there is significant uncertainty about the amount of consideration to which the vendor will be entitled, then the vendor may need to constrain (i.e., reduce) the amount of revenue recognized on 1 January 2018. This could be the case, for example, if there is a significant risk of the goods being returned.

The vendor would then need to reassess this estimate at each reporting date, and adjust the amount of revenue recognized as more information becomes available.