Updated 21 June 2026 · Reviewed by IFRS Buddy Editorial Team
This practice question tests your ability to apply Step 3 of the IFRS 15 five-step model — determining the transaction price when variable consideration is present. The volume discount here means the amount DataTech will receive depends on MegaCo's total annual purchases. Work through the scenario, then compare your answer with the model solution and the paragraph-level analysis below.
DataTech supplies laptop computers to large businesses. On 1 July 20X5, DataTech entered into a contract with MegaCo to purchase laptops at $480 per unit. The contract states that if MegaCo purchases more than 600 laptops in a year, the price per unit is reduced retrospectively to $432 per unit. DataTech's year end is 30 June.
Calculate the revenue DataTech would recognise in:
We need to apply the principles of IFRS 15 Revenue from Contracts with Customers.
DataTech should recognise revenue of 75 × $480 = $36,000 for the first quarter ended 30 September 20X5.
At this point, DataTech estimates that MegaCo will purchase fewer than 600 laptops during the year, so the volume discount is not expected to apply. Revenue is recognised at the full contract price of $480 per unit.
In the quarter ended 31 December 20X5, MegaCo purchased a further 225 laptops, bringing the cumulative total to 300 units. DataTech now estimates that cumulative annual purchases will exceed 600 units, and the volume discount will therefore apply retrospectively to all units sold.
The transaction price must be revised to $432 per unit for all 300 laptops delivered so far:
| Calculation | Amount | |
|---|---|---|
| Cumulative revenue at revised price | 300 × $432 | $129,600 |
| Less: revenue recognised in Q1 | ($36,000) | |
| Revenue for Q2 (ended 31 Dec 20X5) | $93,600 |
The volume discount means the unit price DataTech ultimately receives depends on MegaCo's total annual purchases — an outcome not known at contract inception. This is variable consideration under IFRS 15.47. Entities must estimate variable consideration using either:
Here, there are only two outcomes: either the 600-unit threshold is exceeded or it is not. DataTech uses the most likely amount in both quarters.
IFRS 15.56 requires that variable consideration is included in the transaction price only to the extent it is highly probable that a significant reversal of cumulative revenue will not occur when the uncertainty resolves.
In Q1, DataTech's estimate is that the threshold will not be reached. The full price of $480 meets the high-probability test — recognising $480/unit is not expected to result in a revenue reversal, so no constraint is applied.
When circumstances change and the estimate of variable consideration is revised, IFRS 15.88 requires a cumulative catch-up adjustment: the entity adjusts the transaction price and recognises the cumulative effect in the period of the change. There is no restatement of prior periods.
In Q2, the estimate changes: the threshold is now expected to be exceeded. The transaction price drops to $432/unit for all 300 laptops delivered to date. DataTech recognises the cumulative revenue at the new price ($129,600) and deducts what it already recognised in Q1 ($36,000), giving Q2 revenue of $93,600.
Suppose at contract inception DataTech estimated a 35% probability that MegaCo would exceed the 600-unit threshold. The expected value per unit would be:
(65% × $480) + (35% × $432) = $312 + $151.20 = $463.20/unit
Q1 revenue would then be 75 × $463.20 = $34,740. The expected value method spreads the probability of the discount across all units from day one — it removes the sharp catch-up adjustment in Q2 but requires a continuous probability estimate throughout the contract.