Final answer:
Variable consideration examples include performance bonuses, discounts, rebates, royalties, and contingent payments. The two approaches for estimating variable consideration are the expected value method and the most likely value method.
Step-by-step explanation:
Variable consideration refers to consideration in a contract (such as revenue) that can vary due to uncertainties or changes in circumstances. Some examples of variable consideration include performance bonuses, discounts, rebates, royalties, and contingent payments.
There are two approaches for estimating variable consideration:
- The expected value method: This approach calculates the weighted average of all possible outcomes based on their probabilities. For each possible outcome, the amount of variable consideration is multiplied by its probability and then summed up.
- The most likely value method: This approach uses the single most likely outcome as the estimate for variable consideration. It is based on the outcome with the highest probability or the most common occurrence.