What is Variable Consideration?
Variable consideration is any part of the transaction price in a contract that depends on uncertain future events, such as discounts, rebates, performance bonuses, penalties or refunds. Under IFRS 15, the entity must estimate variable consideration and include it in the transaction price subject to a constraint that limits revenue to the amount that is highly probable not to reverse.
How It Works
- Identify variable elements in the contract.
- Estimate using the expected value or most likely amount approach.
- Apply the constraint to avoid recognizing reversible revenue.
- Update the estimate at each reporting date.
Saudi Context
Saudi telecom operators apply variable consideration when bundling handsets with usage-based contracts that include volume discounts.
Example
If a contract offers a SAR 100,000 bonus for early delivery and the entity is 80 percent confident of earning it, IFRS 15 may require including only part of the bonus in the transaction price until uncertainty resolves.