If a contract with a customer is modified, IFRS 15 prescribes the following approaches to account for the modification:

1. As a Separate Contract: If the modification adds distinct goods or services at a price that reflects the standalone selling prices of those goods or services, it is treated as a separate contract. This means that the modification will not affect the accounting for the original contract.
2. As a Termination of the Existing Contract and Creation of a New Contract: If the modification results in a change in the contract that effectively makes it a new contract, the original contract is considered terminated, and a new contract is created. This typically happens when the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification. The effect of the contract modification on the transaction price, and on the entity’s measure of progress towards complete satisfaction of the performance obligation, is recognized as if the remaining goods or services were part of a new contract.
3. As a Part of the Existing Contract: If the remaining goods or services are not distinct and, hence, form part of a single performance obligation that is partially satisfied at the date of the contract modification, then the modification is accounted for as if it were part of the existing contract. The effect that the contract modification has on the transaction price, and on the entity’s measure of progress towards complete satisfaction of the performance obligation, is recognized as an adjustment to revenue (either an increase or a decrease) at the date of the contract modification (the adjustment to revenue is made on a cumulative catch-up basis).

These methods ensure that the recognition of revenue accurately depicts the transfer of goods or services to the customer, in line with the consideration to which the entity expects to be entitled.

The approach which is then followed is illustrated by the following diagram: