Question

Which of the following is correct in relation to IFRS 15 Revenue from Contracts with Customers?

A. The 'expected value' method may better predict variable consideration if the contract has only two possible outcomes.
B. The 'expected value' method requires an entity to identify the probability of each possible outcome of a contract occurring.
C. The 'expected value' method must be adopted as an entity's accounting policy to estimate variable consideration for every contract.
D. The transaction price determined at the start of a contract is not updated for any changes in an entity's assessment of the amount of consideration to which it expects to be entitled.

Answer 1

The correct statement about IFRS 15 is that the 'expected value' method involves identifying the probability of each possible outcome of a contract to estimate variable consideration. It is not confined to contracts with only two outcomes, doesn't have to be adopted as an entity's only accounting policy, and the transaction price can be updated.

Step-by-step explanation:

The correct statement in relation to IFRS 15 Revenue from Contracts with Customers is B. The 'expected value' method requires an entity to identify the probability of each possible outcome of a contract occurring. This method is one of two methods that can be used to estimate the amount of variable consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.

It is particularly useful when an entity has a contract that includes a large number of similar transactions with customers. Choice A may not be entirely correct because the expected value method can be beneficial when there are more than two possible outcomes.