When several goods and/or services are sold together as a bundle, it is called a bundled deliverable. If you recall, both IFRS and ASPE require us to evaluate the performance obligations of each separable item in the bundled deliverable to determine when and how much revenue to recognize. For example, a mobile device might be sold by itself, or in conjunction with a mobile plan. The second scenario is an example of a bundled deliverable.
This topic was previously touched upon, but is reviewed again here. There are two steps to Revenue recognition with bundled deliverables.
Determine when to recognize Revenue for each separable component.
Determine how much Revenue to allocate to each separable component.
When do we recognize Revenue?
Revenue is recognized when all of the performance obligations listed in the IFRS Revenue recognition criteria or ASPE Revenue recognition criteria are met. Remember that we need to review the performance obligations for each separate component.
How do we allocate Revenue?
If the goods or services were recognized at one point in time, then Revenue does not need to be allocated separately. However, if the goods or services have different recognition patterns, then we need to allocate Revenue separately.
Under both IFRS (IFRS 15, Paragraph 73-79) and ASPE (3400), the allocation of the Revenue should be done in a manner that accurately represents the separate selling price for each separate component.
The following methods of measurement can be used (under both IFRS and ASPE):
Adjusted market assessment approach — revenue is based on the market value of each separate component. With this method, we determine fair value (a.k.a. “Market value”) of each item separately and apply any additional amount, proportionately between the items (based on their individual Fair Values).
Expected cost plus a margin approach — revenue is based on the cost of producing each separate good or service. An additional standard profit margin is then added to each component.
Residual approach — this method first allocates the prices to specific components for which standard market value has already been established, and then allocates the remaining amount to the components for which prices are more difficult to establish. Residual approach is used when one component can be reliably measured, while the other(s) is/are more difficult to establish. We allocate the Fair Value price to the known item, and then allocate the remaining amount to the item of unknown value.
Allocating Discounts to Revenue
Under both IFRS (IFRS 15, Paragraph 81) and ASPE, if the bundled deliverables are sold at a discount, then that discount should be allocated proportionally among the different components.
However, under IFRS 15 (Paragraph 82), there are some exceptions. If all of the following criteria are met, then we must allocate the discount to entirely one or more components:
“the entity regularly sells each distinct good or service (or each bundle of distinct goods or services) in the contract on a stand-alone basis; AND
the entity also regularly sells on a stand-alone basis a bundle (or bundles) of some of those distinct goods or services at a discount to the stand-alone selling prices of the goods or services in each bundle; AND
the discount attributable to each bundle of goods or services is substantially the same as the discount in the contract and an analysis of the goods or services in each bundle provides observable evidence of the performance obligation (or performance obligations) to which the entire discount in the contract belongs.” (IFRS 15, Paragraph 82)
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