Home IFRS 15 Ep 03 — Transaction Price
Episode 03 · 8 min Step 3 · Determine the transaction price

GH₵800,000 Stated. What's the Real Transaction Price?

// Variable consideration · expected-value method · the constraint · financing flag

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GH₵ 1 · Contract 2 · Obligations 3 · Price 4 · Allocate 5 · Recognise EPISODE 03 · IFRS 15 · STEP 3 Transaction Price GH₵800,000 stated — but is that what TerraGold is actually entitled to? PRESS PLAY ▶ RECAP · EPISODES 01 & 02 WHERE WE ARE Contract verified · 3 performance obligations identified The Completed Home · Warranty Service · Maintenance Service SPA states GH₵800,000. But IFRS 15 may say otherwise. → TODAY: WHAT IS THE TRANSACTION PRICE? "Transaction price" = the consideration the seller expects to be entitled to — not always what's stated. THE STARTING POINT · FIXED CONSIDERATION SPA · STATED PRICE GH₵ 800,000 FIXED · WRITTEN INTO THE AGREEMENT No price escalator. No volume discount. Single number. SO IS GH₵800,000 ALSO THE TRANSACTION PRICE? Not necessarily. IFRS 15 has up to five things that can move it. We'll walk each one in the next scene. Step 3 starts here — but rarely ends here. IFRS 15.47 · FIVE COMPONENTS OF THE TRANSACTION PRICE Each one can move the price up, down, or leave it alone. COMPONENT 01 Fixed Consideration The amount the parties have agreed to in writing. GH₵ 800,000 → STARTING POINT COMPONENT 02 Variable Consideration Bonuses, penalties, discounts, refunds. Late-delivery penalty clause → LET'S ESTIMATE COMPONENT 03 Significant Financing When payment timing differs significantly from delivery. Pay-ahead by ~9 months avg. → FLAG & CHECK COMPONENT 04 Non-Cash Consideration Goods, shares, or other non-money things received. None here → ZERO COMPONENT 05 Payable to Customer Rebates, credits, or refunds back to buyer. None here → ZERO Now we drill into the live one — variable consideration. COMPONENT 02 · VARIABLE CONSIDERATION From clause 14.3 of the SPA — the late-delivery penalty: "If TerraGold misses the 24-month handover, the buyer receives a GH₵50,000 reduction." OUTCOME · ON TIME GH₵ 800,000 FULL CONTRACT VALUE No reduction · TerraGold's normal case. OUTCOME · LATE GH₵ 750,000 800,000 LESS 50,000 PENALTY Penalty triggered if 24-mo handover missed. Two outcomes. One transaction price. We must pick a method to estimate. IFRS 15.53 · TWO METHODS TO ESTIMATE VARIABILITY Pick whichever method better predicts the consideration the entity is entitled to. METHOD A · EXPECTED VALUE Probability-weighted average across outcomes. Best when there are many possible outcomes — or a long historical record. Example: a contractor with hundreds of past projects · large data set. ← USE FOR TERRAGOLD METHOD B · MOST LIKELY AMOUNT The single most probable outcome. Best when there are only two or three possible outcomes. Example: a one-off bonus that the contractor will either earn or won't. — SECONDARY HERE TerraGold has 5 years of delivery history → expected value works. EXPECTED VALUE · USING TERRAGOLD'S 5-YEAR DELIVERY HISTORY HISTORICAL OUTCOMES · LAST 5 YEARS · 250 HANDOVERS 90% on time → outcome: GH₵800,000 10% late → outcome: GH₵750,000 (= 800k − 50k) EXPECTED VALUE OF THE PENALTY · IFRS 15.53(a) E[penalty] = P(late) × penalty + P(on time) × 0 = 10% × (−50,000) + 90% × 0 = −5,000 GH₵ Adjustment: subtract GH₵5,000 from the stated price (subject to the constraint, next). Probability-weighted means: a small reliable haircut, not the worst-case 50,000. IFRS 15.56 · THE CONSTRAINT ON VARIABLE CONSIDERATION "Include variable consideration only to the extent it is highly probable a significant revenue reversal will not occur." Translation: don't book what you might have to give back. APPLY THE CONSTRAINT TO TERRAGOLD'S −5,000 ESTIMATE Five years of consistent delivery data — track record is stable. GH₵5,000 is small (0.6% of contract) — low risk of significant reversal. No external risks (e.g. supply disruption) signalled at reporting date. ✓ CONSTRAINT PASSED — INCLUDE THE −5,000 ADJUSTMENT Without consistent history, the safer call is to book just the on-time price (800,000) and adjust later. IFRS 15.60 · SIGNIFICANT FINANCING COMPONENT When customer pays well before — or after — receiving the goods, there's an embedded loan. Adjust for the time value of money. TERRAGOLD'S TIMING — A 24-MONTH GAP DAY 0 240k deposit MONTH 18 Last instalment MONTH 24 Handover Avg. payment lands ~9 months ahead of delivery ⚑ FINANCING COMPONENT FLAGGED In real practice — discount the future cash flows at the imputed interest rate. We skip the maths here. For training, we leave the price at GH₵795,000. Real reporting books would adjust further. FINAL TRANSACTION PRICE Stated price 800,000 Variable consideration −5,000 Financing component ⚑ flagged Non-cash · payable 0 Transaction price 795,000 Allocated across 3 POs in Episode 4. TAKE THE QUIZ → Pass the quiz to earn your CPD certificate. RESULT GH₵800k stated → GH₵795k IFRS
NARRATOR · KOJO Welcome to Episode 1 of IFRS 15. Press the play button below to begin.
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