Transaction price

In this lesson

1. 0:00 Understanding transaction price in revenue recognition
2. 0:19 Accounting for variable consideration in contracts
3. 0:31 Measuring non-cash consideration at fair value
4. 2:04 Handling consideration payable to customers
5. 2:37 Adjusting for financing components over time
6. 3:32 Allocating transaction price to performance obligations

About this lesson

Transaction price is the amount of consideration you expect to receive for transferring goods or services, but it requires careful analysis of variable consideration, non-cash elements, amounts payable to customers, and financing components. You'll work through five key considerations when calculating transaction price. Variable consideration—such as discounts, refunds, or performance bonuses—must be estimated and recognised only if it's highly probable it won't be reversed. Non-cash consideration is measured at fair value, either directly or by reference to standalone selling prices. Any cash you expect to pay to the customer reduces the transaction price unless it's payment for a distinct good or service. Consideration payable to customers may also include variable amounts that need estimating. Finally, if there's a significant time gap between delivering goods or services and receiving payment, you must adjust for the time value of money using prevailing market interest rates. Once you've determined the transaction price, you'll allocate it to each performance obligation in the contract using standalone selling prices as your reference point. Where standalone prices aren't directly observable, you use all available information to maximise observable inputs—for example, using prices of similar items or allocating any bundled discounts proportionally based on relative standalone prices. This systematic approach ensures your revenue recognition is accurate and compliant with IFRS standards.

Duration: 4m