Your contract has several performance obligations and one price, so how much of that price does each obligation earn? If you are searching for how to allocate the transaction price under IFRS 15, this lesson covers the fourth step of the model and the traps that cost marks in exams and reviews.
Why allocation matters
Allocation does not change the total price. It decides how the total is carved up, and because obligations are satisfied at different times, the carve-up shapes when revenue appears.
What the lesson covers
- The general rule: the price is allocated in proportion to relative standalone selling prices, and the allocated amounts must reconcile to the price exactly.
- Evidence for the standalone selling price: when an observable price exists and when you must estimate one.
- Estimation methods: adjusted market assessment, expected cost plus margin and the residual approach, with the conditions that limit when the residual approach is open to you.
- Discounts: IFRS 15.81 spreads a discount across the bundle unless the IFRS 15.82 criteria are all met.
- Variable consideration: IFRS 15.84 covers where it belongs and IFRS 15.85 sets the two-part test for one obligation.
- Common mistakes: where candidates go wrong when the price changes after inception.
The worked example
We return to the services contract from an earlier lesson, first allocating the price and then adding a performance bonus to see how the answer moves. The figures stay out of this article on purpose. Estimate each obligation’s share before you open the lesson, then compare your split with ours and check that it reconciles.
The question that trips students up
A required allocation is not a choice. When the criteria for concentrating a discount or a variable amount are met, the standard says where the amount goes, and when they are not met you spread it. The lesson shows how to test the facts rather than reach for the method you prefer.
Take the lesson
Enrol in the IFRS 15 course at Amatle Institute and work through the full lesson on allocating the transaction price, including both worked examples. Test your own allocation before you see ours.
Questions about this topic
How is the transaction price allocated under IFRS 15?
The price is allocated to each performance obligation in proportion to its relative standalone selling price, and the allocated amounts must add up to the transaction price. IFRS 15.76 sets this basis.
When can a discount be allocated to only some of the obligations?
Only when all three criteria in IFRS 15.82 are met, including that the entity regularly sells a subset of the items together at a discount that is substantially the same as the discount in the contract. Otherwise the discount is spread across all the obligations, as IFRS 15.81 requires.
When is variable consideration allocated entirely to one obligation?
When the variable terms relate specifically to that obligation and allocating the amount entirely there is consistent with the allocation objective, as IFRS 15.85 sets out. It is a requirement when both parts are met, not a policy election.
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