Revenue, Contract Accounting and Operating Performance

Introduction and context

Revenue is often the most significant measure of operating activity in financial statements. It affects profit, margins, growth rates, performance-based remuneration, debt covenants, valuation multiples and taxation. It is also vulnerable to premature recognition, inappropriate estimates and poorly designed incentives. IFRS 15 Revenue from Contracts with Customers establishes a single principles-based framework for recognising revenue from customer contracts. Its central principle is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled.

IFRS 15 replaced several earlier standards and interpretations, reducing industry-specific differences. Nevertheless, its application requires judgement, particularly when contracts contain multiple promises, variable consideration, financing components, modifications, warranties, licences, implementation services or third-party suppliers.

This chapter develops the five-step model and applies it to complex arrangements. It also considers how revenue accounting affects operating-performance analysis and how governance systems can reduce reporting risk.

Learning objectives

By the end of this chapter, the reader should be able to:

1. Apply the five-step IFRS 15 model to customer contracts.
2. Identify performance obligations and determine whether they are satisfied over time or at a point in time.
3. Estimate transaction prices, including variable consideration and significant financing components.
4. Allocate consideration using relative stand-alone selling prices.
5. Account for contract modifications, warranties, principal–agent relationships and contract costs.
6. Analyse multi-period arrangements and their effects on operating performance.
7. Evaluate judgement, controls, disclosure and ethical risks in revenue reporting.

1. The conceptual foundation of IFRS 15

A contract is an agreement between two or more parties that creates enforceable rights and obligations. Under IFRS 15, a contract with a customer generally exists when:

• the parties have approved the arrangement and are committed to perform;
• each party’s rights regarding goods or services can be identified;
• payment terms can be identified;
• the arrangement has commercial substance; and
• it is probable that the entity will collect the consideration to which it expects to be entitled.

A customer obtains goods or services from the entity’s ordinary activities in exchange for consideration. A counterparty in a collaboration or risk-sharing arrangement is not necessarily a customer; classification depends on the substance of the relationship.

The five steps are:

1. Identify the contract with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations.
5. Recognise revenue when, or as, each performance obligation is satisfied.

The model is not a mechanical invoice-based approach. Revenue follows the transfer of control, not necessarily billing, cash collection or legal title.

2. Step one: identifying the contract

Contracts may be written, oral or implied by customary business practices, provided that the relevant enforceability requirements are met. Two or more contracts entered into at or near the same time with the same customer, or related parties of the customer, are combined when they are negotiated as a package with a single commercial objective, when consideration in one contract depends on the other, or when the promised goods or services form a single performance obligation.

A contract asset arises when the entity has transferred goods or services before the right to payment becomes unconditional. A receivable is an unconditional right to consideration, subject only to the passage of time. A contract liability arises when the customer pays, or payment is due, before the entity transfers the promised goods or services.

These distinctions matter because billing does not itself establish revenue. For example, an annual subscription billed in advance usually creates a contract liability until the subscription service is provided.

3. Step two: identifying performance obligations

A performance obligation is a promise to transfer to the customer either:

• a good or service that is distinct; or
• a series of distinct goods or services that are substantially the same and transferred in the same pattern.

A good or service is distinct when the customer can benefit from it either on its own or with readily available resources, and the promise is separately identifiable from other promises in the contract. A good may be capable of being distinct but not separately identifiable if the entity provides a significant integration service, significantly modifies or customises it, or the goods and services are highly interdependent or interrelated.

Examples often requiring analysis include:

• equipment combined with installation and integration;
• software licences, implementation and support;
• construction, design and project management;
• telecommunications devices and service plans;
• goods accompanied by customer options or material rights.

A customer option is a separate performance obligation when it provides a material right that the customer would not receive without entering into the contract—for example, a discount on future purchases that exceeds discounts normally offered to similar customers.

Distinct versus bundled promises

Suppose an entity sells a specialised machine, performs substantial customisation and provides three years of technical support. If the machine cannot function for the customer without the customisation and the entity integrates the components into one output, the promises may form one combined performance obligation. If the machine operates independently and support is separately identifiable, the machine and support may be separate obligations.

The assessment is based on the customer’s perspective and the contract’s substance, not merely on how many line items appear on an invoice.

4. Step three: determining the transaction price

The transaction price is the amount of consideration to which the entity expects to be entitled in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties, such as some sales taxes. It may include fixed consideration, variable consideration, consideration payable to the customer and, when relevant, the effects of financing.

Variable consideration

Variable consideration may result from discounts, rebates, refunds, credits, incentives, performance bonuses, penalties, returns or usage-based fees. The entity estimates variable consideration using either:

• the expected-value method, appropriate when there is a range of possible outcomes; or
• the most-likely-amount method, appropriate when the outcome is binary or concentrated around one amount.

The estimate is included only to the extent that it is highly probable that a significant reversal of cumulative revenue will not occur when the uncertainty is resolved. This is the variable-consideration constraint.

For example, a supplier may be entitled to a $100,000 bonus if installation is completed by a deadline, but the bonus is uncertain. If management concludes that the deadline outcome is genuinely uncertain, the bonus may be excluded until the constraint is resolved. The assessment is updated at each reporting date.

A refund liability is recognised for consideration expected to be refunded. An asset may be recognised for the right to recover products expected to be returned, measured by reference to the former carrying amount less expected recovery costs and impairment.

Significant financing component

If payment timing provides a significant financing benefit to either party, the entity adjusts the promised consideration for the time value of money. The practical expedient permits an entity not to adjust for a significant financing component when, at contract inception, the period between transfer and payment is expected to be one year or less.

When financing adjustment is required, the transaction price reflects the cash selling price at the transfer date. If the customer pays in advance, interest expense may arise for the entity; if the customer pays after transfer, interest income may arise. The assessment also considers the purpose of payment timing, market conditions, collateral and the difference between promised consideration and cash selling price.

Non-cash consideration and consideration payable to customers

Non-cash consideration is generally measured at fair value when that fair value can be reasonably estimated. Consideration payable to a customer reduces the transaction price unless it represents payment for a distinct good or service received from the customer.

5. Step four: allocating the transaction price

The transaction price is allocated to performance obligations in proportion to their relative stand-alone selling prices at contract inception. If the stand-alone selling price of obligation i is SSP_i and total transaction price is TP, the allocation is:

Here, ∑SSP_j is the sum of the stand-alone selling prices of all performance obligations. The equation assumes that the obligations have been correctly identified and that the estimates are measured at contract inception.

Stand-alone selling prices are the prices at which the entity would sell the promised good or service separately. Observable prices are the best evidence. If unavailable, estimation methods may include adjusted market assessment, expected cost plus margin, or a residual approach when the selling price is highly variable or uncertain.

A discount is normally allocated proportionately. However, a discount may be allocated entirely to one or more performance obligations if observable evidence indicates that it relates specifically to them. Variable consideration may similarly be allocated to a specific performance obligation if the terms and economics support that conclusion.

Worked example: allocation

An entity sells equipment, installation and two years of support for $120,000. Estimated stand-alone selling prices are:

The allocation ratio is based on each stand-alone selling price divided by $150,000. Therefore:

• Equipment: $120,000 × $100,000 ÷ $150,000 = $80,000.
• Installation: $120,000 × $20,000 ÷ $150,000 = $16,000.
• Support: $120,000 × $30,000 ÷ $150,000 = $24,000.

The allocated amounts total $120,000. Revenue is then recognised according to when each obligation is satisfied, not necessarily when the customer is invoiced.

6. Step five: recognising revenue

Revenue is recognised when control transfers to the customer. Control means the customer can direct the use of and obtain substantially all remaining benefits from the asset. Indicators include a present right to payment, legal title, physical possession, significant risks and rewards, and customer acceptance. No single indicator is determinative in every arrangement.

Over-time recognition

A performance obligation is satisfied over time if one of the following applies:

1. The customer simultaneously receives and consumes the benefits as the entity performs.
2. The entity’s performance creates or enhances an asset controlled by the customer as it is created.
3. The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date.

Examples include routine cleaning, many managed services, some construction contracts and certain customised assets. Progress is measured using an output method, such as milestones or units delivered, or an input method, such as costs incurred, labour hours or machine time. The method must faithfully depict transfer and should exclude inputs that do not represent performance.

For a cost-to-cost measure of progress:

If the transaction price is TP and the percentage complete is p, cumulative revenue is:

The method is appropriate only when costs incurred reasonably reflect the transfer of control. Abnormal waste, significant uninstalled materials or costs that do not depict performance may require adjustment.

Point-in-time recognition

If none of the over-time criteria is met, revenue is recognised at the point in time when control transfers. The entity evaluates indicators such as customer acceptance, legal title, physical possession, risks and rewards, and the right to payment.

Worked example: long-term service arrangement

An entity agrees to provide a two-year service for fixed consideration of $240,000. The service is a single performance obligation satisfied evenly over time because the customer simultaneously receives and consumes the benefits. Assuming performance is even and no financing adjustment is required:

• monthly revenue = $240,000 ÷ 24 = $10,000;
• revenue after nine months = $90,000;
• remaining contract liability, if billed and collected in advance, = $150,000.

The allocation is simple here because the service is one obligation and transfer is even. If service effort is not even, revenue should follow the pattern of performance rather than an arbitrary straight-line schedule.

7. Contract modifications

A contract modification is a change in scope or price, or both, approved by the parties. The accounting depends on whether the modification creates a separate contract.

A modification is a separate contract when it adds distinct goods or services and the price increase reflects their stand-alone selling prices, including appropriate adjustments for contract-specific circumstances.

If it is not a separate contract, accounting depends on the remaining goods or services:

• If the remaining goods or services are distinct from those already transferred, the modification is generally treated as a termination of the existing contract and creation of a new contract. The remaining consideration is allocated to the remaining obligations.
• If the modification forms part of a single performance obligation that is partially satisfied, it is generally treated as a cumulative catch-up adjustment to revenue.
• A combination of these circumstances may require a mixture of prospective and cumulative-catch-up accounting.

Judgement is especially important in construction claims, change orders and contracts with disputed scope. An unapproved change order does not automatically create enforceable rights, although it may affect variable consideration or contract existence depending on the facts.

8. Principal–agent relationships

When another party is involved in providing goods or services to a customer, the entity determines whether it controls the specified good or service before transfer. If it controls the good or service, it is a principal and recognises gross revenue. If it merely arranges for another party to provide it, it is an agent and recognises only the net fee or commission.

Indicators supporting principal status may include primary responsibility for fulfilment, inventory risk before or after transfer, and discretion in establishing price. These are indicators, not a substitute for the control assessment.

Consider an online marketplace that arranges delivery by independent restaurants. If the marketplace never controls the meals and merely arranges delivery, its revenue may be the commission. If it purchases, controls and resells meals, gross reporting may be appropriate. The conclusion can differ by specified good or service within the same contract.

Gross-versus-net presentation materially affects reported revenue growth and margins. Consequently, principal–agent judgements are important to analysts and regulators.

9. Warranties, returns and customer rights

A warranty is accounted for according to its substance:

• An assurance-type warranty promises that the product complies with agreed specifications. It is generally accounted for under IAS 37, with a provision for expected costs, unless the warranty provides a service in addition to assurance.
• A service-type warranty provides a distinct service and is a separate performance obligation. Part of the transaction price is allocated to it and recognised over the service period.

A warranty that the customer may purchase separately is strong evidence of a service-type warranty, but the analysis remains substantive rather than purely formulaic.

Rights of return create three accounting effects: revenue is recognised only for products expected not to be returned; a refund liability is recognised for expected refunds; and a return asset is recognised for the right to recover products, subject to recovery costs and impairment.

Customer acceptance clauses may prevent control from transferring until acceptance if they are substantive. If acceptance is merely a formality because the specifications are objective and the entity can demonstrate compliance, control may transfer earlier.

10. Contract costs

Incremental costs of obtaining a contract are recognised as an asset if the entity expects to recover them. A sales commission payable only when a contract is obtained is a common example. Costs that would have been incurred regardless of whether the contract was obtained are expensed unless recoverable from the customer.

Costs to fulfil a contract are capitalised only when they relate directly to a contract or anticipated contract, generate or enhance resources that will be used to satisfy future obligations, and are expected to be recovered. Examples may include direct labour, materials and allocation of relevant overhead. General administration, wasted materials and costs relating to past performance are normally expensed.

Capitalised contract costs are amortised systematically in a manner consistent with the transfer of the related goods or services. They are tested for impairment when indicators exist, including when the carrying amount exceeds expected remaining consideration less directly related costs.

11. Complex multi-period arrangements

Multi-period arrangements often combine licences, implementation, support, renewals, usage charges, bonuses, minimum commitments and customer options. A disciplined analysis follows this sequence:

1. Identify enforceable contracts and combine related contracts where required.
2. Map every promise, including implied promises and options.
3. Determine whether promises are distinct or integrated.
4. Estimate fixed and variable consideration and apply the constraint.
5. Identify financing effects and non-cash consideration.
6. Allocate consideration using relative stand-alone selling prices.
7. Determine the transfer pattern for each obligation.
8. Reassess estimates and contract balances at each reporting date.
9. Reconcile recognised revenue to invoices, cash and contract assets or liabilities.

Illustrative integrated case: Meridian Cloud Systems

The following is a fictional illustrative case designed for educational purposes.

#### Background

Meridian sells a three-year cloud package for $360,000. The customer receives a software licence, implementation, cloud hosting and technical support. The customer pays $120,000 at signing and $10,000 per month for 24 months. Meridian also promises a 20% discount on additional modules purchased during the first year. The discount is not normally available to similar customers and is therefore potentially a material right.

#### Problem

Management initially proposes to recognise $360,000 when the contract is signed because the customer has been invoiced for the initial payment and the system licence has been delivered. This approach may be incorrect because delivery, implementation, hosting, support and the option may represent different performance obligations, and the customer may not control the licence until implementation is complete.

#### Analysis

First, Meridian identifies the licence, implementation, hosting and support promises. If implementation significantly integrates the licence into the customer’s systems, the licence and implementation may be one combined obligation. Hosting and support may be distinct if the customer can benefit from them separately and they are not integrated with the implementation.

Second, the discount option is a performance obligation if it provides a material right. Meridian estimates the stand-alone selling price of the option using expected incremental purchases and the associated discount, adjusted for the probability that the option will be exercised.

Third, the transaction price includes fixed consideration and any constrained usage or performance amounts. The promised payment schedule must be assessed for a significant financing component, although the practical expedient may apply to particular periods of one year or less; the overall arrangement still requires careful analysis.

Fourth, Meridian estimates stand-alone selling prices for each obligation. Assume, solely for illustration, that the estimated stand-alone selling prices are:

If the transaction price is $360,000 and no financing or variable consideration adjustment is required, the allocation is:

• licence and implementation: $360,000 × $180,000 ÷ $480,000 = $135,000;
• hosting: $360,000 × $210,000 ÷ $480,000 = $157,500;
• support: $360,000 × $60,000 ÷ $480,000 = $45,000;
• option: $360,000 × $30,000 ÷ $480,000 = $22,500.

Hosting and support may be recognised over 36 months if services are transferred evenly. The option amount is recognised when the option is exercised, expires or otherwise ceases to provide a right. The integrated licence and implementation amount is recognised when the combined obligation is satisfied—possibly over time if the customer controls the work in progress or if Meridian has no alternative use and an enforceable right to payment.

#### Outcome

Meridian records a contract liability for consideration received before performance. It recognises revenue based on transfer rather than invoice timing and documents the assessment of integration, financing, the material right and the transfer pattern. The initial proposal to recognise the entire amount at signing is rejected.

#### Learning points

The case demonstrates that an apparently simple subscription may contain several performance obligations, different revenue patterns and significant estimates. Contract review must involve sales, legal, operations, finance and information systems personnel rather than relying solely on invoice descriptions.

12. Revenue and operating-performance analysis

IFRS 15 can change the timing and classification of reported revenue without changing total contractual cash flows. Analysts should therefore distinguish:

• billings from revenue;
• revenue from cash collections;
• contract assets from receivables;
• contract liabilities from debt;
• reported growth from changes caused by contract modifications, acquisitions or principal–agent presentation.

Useful analytical measures include revenue growth, gross margin, deferred revenue, contract-asset turnover, remaining performance obligations and cash conversion. None should be interpreted in isolation. For example, rapid growth in contract liabilities may signal strong advance sales, but it may also indicate delivery problems or customer cancellations. A high contract-asset balance may indicate successful long-term performance, but it also exposes the entity to collectability and estimation risk.

Revenue disaggregation by geography, product, customer type, timing of transfer and major service category can reveal economic patterns hidden by a single total. Management should explain significant changes in judgements, estimates and contract balances.

13. Governance, ethics and controls

Revenue manipulation may involve fictitious contracts, side agreements, premature shipment, undisclosed rights of return, inappropriate gross reporting, unsupported estimates or failure to record contract liabilities. Ethical pressure is amplified when compensation depends on quarterly revenue or EBITDA.

Effective controls include:

• contract review procedures for non-standard terms;
• approval of price concessions and contract modifications;
• segregation between sales, billing and revenue accounting;
• central registers of performance obligations and stand-alone selling prices;
• automated linkage between fulfilment data and revenue schedules;
• controls over cut-off, acceptance evidence and returns;
• periodic review of variable consideration and collectability;
• independent review of principal–agent and over-time conclusions;
• reconciliation of subledgers, invoices, cash, contract assets and liabilities;
• audit trails for model changes and management estimates.

The audit committee should understand where revenue judgements are concentrated and whether incentives create a bias toward earlier recognition. Documentation should explain not only the conclusion but also rejected alternatives and the evidence supporting the conclusion.

14. Technology and contemporary developments

Enterprise resource planning systems can allocate consideration, track fulfilment and generate contract-asset and contract-liability schedules. Artificial intelligence may assist in extracting clauses, identifying unusual modifications or comparing contracts with approved templates. However, AI outputs do not establish enforceable rights, control or the probability of a significant reversal. Human professionals must validate legal interpretation, data quality, estimates and model assumptions.

Technology also creates risks. Poor master data, automated default rules, disconnected billing systems and opaque machine-learning models can produce systematic misstatements at scale. Governance should require version control, access restrictions, explainability, exception reporting and human approval for material judgements.

15. Challenges and limitations

IFRS 15 improves consistency but does not eliminate judgement. Major challenges include:

• determining whether promises are distinct;
• estimating stand-alone selling prices when products are rarely sold separately;
• forecasting usage, returns, rebates and bonuses;
• assessing enforceability across jurisdictions;
• measuring progress when costs are volatile or front-loaded;
• identifying whether a supplier is controlled before transfer;
• distinguishing assurance warranties from service warranties;
• maintaining estimates as contracts change.

Comparability may still be affected by different business models, contract terms and estimation techniques. Disclosure requirements improve transparency, but disclosures cannot fully replace robust underlying controls.

Chapter Summary

IFRS 15 applies a five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate consideration and recognise revenue when or as obligations are satisfied. The framework focuses on transfer of control and requires careful analysis of distinct goods and services, variable consideration, financing, stand-alone selling prices and progress toward completion. Contract assets and liabilities explain why revenue, billing and cash may occur in different periods.

Contract modifications, principal–agent relationships, warranties, rights of return and contract costs can materially affect both timing and presentation. Multi-period arrangements require an integrated review of legal terms, operational delivery, estimates and customer options. Revenue accounting also has direct implications for operating-performance analysis, incentives, governance and audit risk. Technology can improve consistency, but professional judgement and ethical oversight remain essential.

Key Terms

Contract asset: A right to consideration for goods or services already transferred, when that right is conditional on something other than passage of time.

Contract liability: An obligation to transfer goods or services for which consideration has been received or is due.

Control: The customer’s ability to direct the use of and obtain substantially all remaining benefits from an asset.

Customer: A party that contracts with an entity to obtain goods or services arising from the entity’s ordinary activities in exchange for consideration.

Distinct good or service: A promised item from which the customer can benefit and that is separately identifiable in the contract.

Expected-value method: A probability-weighted method for estimating variable consideration.

Material right: A customer option that provides a benefit unavailable to customers who do not enter the contract.

Over-time recognition: Revenue recognition as the entity satisfies a performance obligation over a period.

Performance obligation: A promise to transfer a distinct good or service, or a series of such goods or services.

Point-in-time recognition: Revenue recognition when control transfers at a particular time.

Principal: An entity that controls a specified good or service before transferring it and therefore generally reports gross revenue.

Refund liability: An obligation to repay consideration expected to be refunded.

Revenue: Consideration arising from an entity’s ordinary activities, recognised as promised goods or services are transferred.

Significant financing component: An effect of payment timing that provides a significant financing benefit to either party.

Stand-alone selling price: The price at which an entity would sell a promised good or service separately.

Transaction price: Consideration to which an entity expects to be entitled for transferring promised goods or services.

Variable consideration: Consideration that changes because of discounts, rebates, returns, bonuses, penalties, usage or similar terms.

Review Questions

Short Answer Questions

1. State the five steps of the IFRS 15 revenue-recognition model.
2. What is the difference between a contract asset and a receivable?
3. When is a customer option a separate performance obligation?
4. Explain the purpose of the variable-consideration constraint.
5. Distinguish an assurance-type warranty from a service-type warranty.

Long Answer Questions

1. Explain how an entity determines whether promised goods and services are distinct, using an integrated equipment-and-service arrangement as an example.
2. Discuss the indicators used to determine whether revenue should be reported gross or net in a principal–agent relationship.
3. Explain the accounting consequences of a contract modification that adds distinct goods at their stand-alone selling prices.
4. Analyse how significant financing components, variable consideration and contract costs affect reported revenue and profit.
5. Evaluate the effects of IFRS 15 on operating-performance analysis and management incentives.

Analytical / Application Questions

1. A company sells equipment, installation and support for $90,000. Their stand-alone selling prices are $80,000, $20,000 and $25,000 respectively. Allocate the transaction price using relative stand-alone selling prices and explain when each amount should be recognised.
2. A construction entity has incurred $3.6 million of costs on a project with expected total costs of $6 million and a transaction price of $8 million. Assuming cost-to-cost progress faithfully depicts performance, calculate percentage complete and cumulative revenue. Identify one reason the calculation might require adjustment.
3. An online platform collects $1,000 from a customer for a third party’s service and retains a $120 commission. Analyse whether the platform should report $1,000 or $120 as revenue and identify the key control question that must be resolved.

Multiple Choice Questions with Answers

Question 1

Which condition is central to identifying a performance obligation under IFRS 15?

A. The item is invoiced separately

B. The item is distinct and promised for transfer to the customer

C. The item has already been paid for

D. The item is subject to a written warranty

Correct Answer: B. The item is distinct and promised for transfer to the customer

Question 2

A contract has a transaction price of $120,000 and stand-alone selling prices of $100,000 and $50,000 for two obligations. What amount is allocated to the first obligation?

A. $60,000

B. $80,000

C. $100,000

D. $120,000

Correct Answer: B. $80,000

Question 3

Under the cost-to-cost method, percentage complete is calculated as:

A. Total estimated costs ÷ costs incurred to date

B. Costs incurred to date ÷ total estimated costs

C. Revenue recognised ÷ cash collected

D. Cash collected ÷ transaction price

Correct Answer: B. Costs incurred to date ÷ total estimated costs

Question 4

When is a contract modification generally a separate contract?

A. When it changes only the payment date

B. When it adds distinct goods at their stand-alone selling prices

C. When management expects a profit

D. When the customer has paid in advance

Correct Answer: B. When it adds distinct goods at their stand-alone selling prices

Question 5

An entity is generally a principal when it:

A. Receives cash directly from the customer

B. Controls the specified good or service before transfer

C. Uses an external supplier

D. Earns a fixed commission

Correct Answer: B. Controls the specified good or service before transfer

Question 6

Which item normally represents a contract liability?

A. Revenue earned but not billed unconditionally

B. Cash received before the promised service is transferred

C. An unconditional receivable

D. Expected sales returns only

Correct Answer: B. Cash received before the promised service is transferred

Question 7

A service-type warranty is generally treated as:

A. A separate performance obligation

B. A reduction of inventory

C. A financing liability

D. An immediate expense only

Correct Answer: A. A separate performance obligation

Question 8

A company incurs $2 million of costs on a project with expected total costs of $5 million and a transaction price of $7.5 million. What cumulative revenue is indicated by cost-to-cost progress, assuming the method faithfully depicts performance?

A. $2.0 million

B. $3.0 million

C. $3.75 million

D. $7.5 million

Correct Answer: B. $3.0 million

Question 9

The variable-consideration constraint requires consideration to be included only when:

A. It has been invoiced

B. It has been collected

C. It is highly probable that a significant reversal will not occur

D. The customer has signed a waiver

Correct Answer: C. It is highly probable that a significant reversal will not occur

Question 10

Which statement best describes a contract asset?

A. A right to consideration that is unconditional

B. A right to consideration for transferred goods or services that remains conditional

C. An obligation to provide future services

D. Inventory held for resale

Correct Answer: B. A right to consideration for transferred goods or services that remains conditional