An agreement between two or more parties that creates enforceable rights and obligations meets the definition of a contract in the revenue standard. A contract can be written, oral, or implied by an entity’s customary business practices. Understanding the entire contract, including any amendments and side agreements, is critical. Legal enforceability depends on the interpretation of the law and could vary across legal jurisdictions. Evaluating the legal enforceability of rights and obligations might be particularly challenging where contracts are entered into across multiple jurisdictions and the rights of the parties are not enforced across those jurisdictions in a similar way.

Determining the contract term

The contract term is the period during which the parties to the contract have present and enforceable rights and obligations. It impacts the determination and allocation of the transaction price, and recognition of revenue. Entities should consider termination clauses when assessing contract duration. If a contract can be terminated early for no compensation, enforceable rights and obligations would likely not exist for the entire stated term. The contract could, in substance, be a shorter-term contract with a right to renew. In contrast, a contract that can be terminated early, but requires payment of a substantive termination penalty, is likely to have a contract term equal to the stated term. This is because enforceable rights and obligations exist throughout the stated contract period.

How should an entity evaluate the impact of a termination clause on contract term? We believe termination penalties can take various forms, such as cash payments or asset transfers to the vendor. Furthermore, a payment needn’t be explicitly labeled a ‘termination penalty’ to establish enforceable rights and obligations. For instance, a significant termination penalty might arise if a customer must reimburse a portion of an upfront discount upon contract termination. Determining whether a termination penalty is significant requires managerial judgment, as there are no definitive criteria. The goal is to ascertain the duration over which parties possess enforceable rights and obligations. Factors for consideration include the contractual terms’ business purpose regarding termination rights and penalties, as well as the entity’s historical business practices. An entity shouldn’t account for termination rights lacking substance, similar to other non-substantive contract provisions. For instance, a termination right might lack substance if it permits a customer to cancel a fully paid contract without requiring the vendor to refund any consideration upon cancellation.

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Both parties can terminate without penalty A service provider engages in a contract with a customer to deliver monthly services over a three-year duration. Both parties hold the right to terminate the contract at the conclusion of any month, for any cause, without any obligation to compensate the other party. In other words, there are no penalties for early termination of the contract. Question What is the contract term for purposes of applying the revenue standard? Answer Given the absence of enforceable rights and obligations beyond the month (or months) of services already rendered, the contract should be regarded as a month-to-month agreement, notwithstanding the stated three-year term.

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Only the customer can terminate without penalty A service provider enters into a contract with a customer to provide monthly services for a three-year period. The customer can terminate the contract at the end of any month for any reason without compensating the service provider to terminate the contract. Question What is the contract term for purposes of applying the revenue standard? Answer The contract should be treated as a month-to-month agreement, with the customer having the option to renew each month. This aligns with the discussion in the basis for conclusions, which highlights that customer cancellation rights can resemble a renewal option. In this scenario, the three-year cancellation contract is essentially equivalent to a series of one-month renewable contracts

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Impact of termination penalty A service provider and a customer enter into a contract for monthly services spanning a three-year term. The customer retains the right to terminate the contract at the end of any month, for any reason. However, if the termination occurs within the initial 12 months, the customer is obligated to pay a termination penalty. Question What is the contract term for purposes of applying the revenue standard? Answer The significance of the termination penalty determines the contract’s term. Management needs to evaluate whether the penalty is substantial enough to establish enforceable rights and obligations for the initial 12 months of the contract. If deemed substantive, the contract term would effectively be one year.

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Determining the contract term for a licence of intellectual property A biotech company engages in a 10-year term license agreement with a pharmaceutical company, granting exclusive rights to sell products utilizing its intellectual property in a designated territory. The agreement entails no other performance obligations. The pharmaceutical company makes an initial non-refundable payment of C25 million and commits to paying an additional C1 million annually throughout the stipulated term. While the pharmaceutical company reserves the right to terminate the contract at its discretion, it must return the licensed intellectual property rights to the biotech company upon cancellation. Notably, no refund is issued for previously paid amounts upon contract termination. Question What is the contract term for purposes of applying the revenue standard? Answer The biotech company would likely determine the contract term as 10 years because the pharmaceutical company faces a substantive termination penalty upon cancellation. In this arrangement, the substantive termination penalty arises from the pharmaceutical company’s obligation to transfer an asset back to the biotech company, specifically the return of its exclusive rights to the licensed intellectual property without receiving any refund of previously paid amounts. Assessing whether a substantive termination penalty arises upon cancellation may require significant judgement, particularly for agreements involving the licensing of intellectual property. Factors to consider include the nature of the license, payment terms (especially the upfront payment proportion), the business rationale behind termination rights in the contract terms, and the repercussions of contract termination on any other performance obligations within the contract. If management determines that a termination right shortens the contract term from the stated period, they should evaluate whether the arrangement incorporates a renewal option granting the customer a significant right.

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Effect of price concessions on the collectability criterion An entity must exercise judgment and consider all pertinent facts and circumstances to decide whether, at the inception of a contract, the stated consideration should be adjusted to account for the impact of a price concession. This adjustment may be warranted if: The customer anticipates, based on the entity’s customary business practices, published policies, or explicit statements, that the entity will offer a concessionary price, deviating from the contract’s stated price; or • Other facts and circumstances indicate that the entity’s intention upon entering the contract is to grant a price concession to the customer. If either condition applies, the consideration outlined in the contract becomes variable due to the price concession. The entity must then evaluate whether the collectability criterion in IFRS 15is met, considering the net expected consideration (i.e., the contractually stated consideration adjusted for the expected price concession). Otherwise, the assessment of the collectability criterion should be based on whether, at inception, it is deemed probable that the full contract amount will be collected.

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Example Consideration is not the stated price – implicit price concession An entity sells 1,000 units of a prescription drug to a customer for an agreed consideration of CU1 million. This marks the entity’s initial sale to a customer in a new region grappling with significant economic challenges. Acknowledging the likelihood of being unable to collect the full promised amount, the entity anticipates a regional economic recovery over the next two to three years and recognizes the potential for establishing beneficial relationships with other potential customers in the region. During the assessment of whether the criterion in IFRS 15 is satisfied, the entity factors in the standard itself. After evaluating the facts and circumstances, the entity determines an expectation to offer a price concession and accept a reduced consideration from the customer. Consequently, it concludes that the transaction price is variable, not CU1 million, and estimates the variable consideration at CU400,000. Considering the customer’s ability and intention to pay, despite the economic challenges in the region, the entity deems it probable to collect CU400,000 from the customer. Consequently, it determines that the criterion in IFRS 15 is met based on the estimated variable consideration of CU400,000. Additionally, after evaluating the contract terms and other relevant factors, the entity concludes that all other criteria in IFRS 15 are also satisfied. Thus, the entity accounts for the contract with the customer in accordance with the stipulations outlined in IFRS 15.

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Example Implicit price concession An entity, a hospital, renders medical services to an uninsured patient in the emergency room. Although the entity hasn’t previously served this patient, it’s mandated by law to provide medical assistance to all emergency room visitors. Due to the patient’s urgent condition upon arrival, the entity promptly delivers the services before determining whether the patient is committed to fulfilling obligations under the contract in exchange for the medical assistance provided. As a result, the contract fails to meet the criteria, the entity will continuously assess its conclusion based on updated facts and circumstances. Following service provision, the entity gathers additional information about the patient, including a review of services delivered, standard rates for such services, and the patient’s capability and intention to remunerate the entity for the rendered services. During this evaluation, the entity notes its standard rate for emergency room services at CU10,000. Additionally, it classifies the patient into a customer category consistent with its policies, based on the entity’s assessment of the patient’s ability and intention to pay. Despite the standard rate for services being CU10,000 (potentially the invoiced amount), the entity anticipates accepting a reduced consideration for the services provided. Consequently, it determines that the transaction price isn’t CU10,000, thus making the promised consideration variable. The entity analyzes its historical cash collections from this customer category and other relevant patient information. It estimates the variable consideration and projects an entitlement to CU1,000. The entity assesses the patient’s ability and intention to pay (i.e., the patient’s credit risk). Based on its collection track record from patients in this customer category, the entity deems it likely to collect CU1,000 (the variable consideration estimate). Additionally, considering an evaluation of the contract terms and other factual circumstances, the entity concludes that all other criteria outlined in IFRS 15are met. Consequently, the entity accounts for the contract with the patient in accordance with the stipulations in IFRS 15.

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Collectability assessed at individual contract level If an entity possesses a collection of contracts that are uniform, including in terms of their collectability, and past data suggests that a portion of the consideration from contracts in the collection may not be recovered, the assessment of the collectability criterion should be conducted at the level of each individual contract rather than estimating the number of contracts in the portfolio that may not meet the criterion. For each specific contract, if it is deemed likely that the entity will collect the entitled consideration, the standard requirements of IFRS 15 should be applied. For instance, if an entity holds a portfolio of 100 similar contracts and past experience indicates that the entity will only receive payments from 98 of those contracts, this does not imply that two contracts should be excluded from the general requirements of IFRS 15. Instead, the entity should evaluate the collectability concerning each contract individually. If there is a 98 percent probability that the amounts due under each contract will be collected, then each contract will satisfy the criterion in IFRS 15. However, attention should be given to any evidence indicating that the collection of amounts due under any particular contract is improbable. If such a scenario arises, that specific contract fails to meet the collectability criterion and should be accounted for as per IFRS 15. Once a contract meets the criteria in IFRS 15, including collectability, the entity recognizes revenue as it fulfills its obligations under the contract based on the amount of consideration it expects to receive (rather than the amount expected to be collected). Therefore, if the entity anticipates receiving consideration of CU500 from each of its contracts, it should recognize that amount as revenue, regardless of its historical 2 percent default rate. Any related receivable or contract asset should then be evaluated for impairment, with any variance between the measurement of the contract asset or receivable and the corresponding revenue amount being presented as an expense as per IFRS 9 (or IAS 39 for entities that haven’t adopted IFRS 9 yet). In the present scenario, this would result in recognized revenue of CU50,000 (CU500 × 100) and, assuming the estimated 98 percent collection rate is accurate, impairment (bad debts) of CU1,000 (CU50,000 × 2%). This matter was deliberated by the TRG in January 2015.

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Evaluating customer termination clauses in determining the contractual period Some contracts include termination clauses allowing the customer to terminate the contract during the stated term by paying a penalty. When assessing the impact of a customer termination clause on the contract term, the entity should consider whether any associated penalty is significant. Deciding whether a penalty is significant necessitates judgment based on specific facts and circumstances. If the penalty is significant, the contract term remains unaffected by the customer’s termination right. If the penalty is not significant, the contract term is limited to the period until the customer has the right to terminate. The transaction price will encompass the termination penalty but will exclude any payments that the customer would avoid by exercising its termination right. In such cases, the entity should assess whether the customer’s right to continue receiving services at a specified incremental price, by refraining from exercising its termination right, constitutes a substantial right as per IFRS 15.

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Evaluating contract termination clauses in determining the contractual period where the termination penalty is not substantive – example An entity engages in a four-year service contract with a customer. The customer is obliged to pay an annual fee of CU1,000 at the commencement of each year, reflecting the stand-alone selling price for a year of services. The customer holds the right to terminate the contract annually on the anniversary date, subject to incurring a termination penalty. This penalty is computed as 10 percent of the total remaining annual service payments. For instance, if the customer terminates at the conclusion of the second year, it will face a penalty of CU200 (CU1,000 per year for Years 3 and 4 multiplied by 10 percent). Historical data suggests that similar contracts are frequently cancelled. In evaluating the substantive nature of the termination clause in the contract, the entity considers all pertinent facts and circumstances. The entity determines that since (1) similar contracts are frequently cancelled based on experience and (2) the termination penalty, representing only 10 percent of the outstanding payments, is unlikely to deter cancellations by customers, it is not substantive. Hence, a contract term of one year is deemed appropriate. The transaction price for the one-year contract comprises the initial annual payment of CU1,000 plus the termination penalty payable at the end of Year 1, amounting to CU300, resulting in a total of CU1,300. In this scenario, the entity identifies a material right within the contract (i.e., the right to continue receiving services beyond Year 1) as per IFRS 15. By choosing not to cancel, the customer can obtain an additional three years of services (normally priced at CU3,000) for an incremental payment of CU2,700 (the surplus of the total fees for the four years over the transaction price). When determining the stand-alone selling price of the material right, the entity should consider both the discount amount (CU300) and the probability of the right being exercised (i.e., the likelihood that the contract will not be terminated) As an alternative, instead of directly estimating the stand-alone selling price of the option, the entity may allocate the transaction price to the optional years of services based on the expected provision of services and corresponding expected consideration. This alternative approach is permissible only when the future goods or services to be acquired are akin to the original ones in the contract and are provided per the terms of the original contract.

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Evaluating contract termination clauses in determining the contractual period where the termination penalty is substantive – example An entity engages in a four-year service contract with a customer, obliging the customer to pay an annual fee of CU1,000 at the beginning of each year, reflecting the stand-alone selling price for a year of services. The customer retains the right to terminate the contract annually on the anniversary date, subject to incurring a termination penalty. This penalty is calculated as 90 percent of the total remaining annual service payments. For instance, if the customer terminates at the conclusion of the second year, it will face a penalty of CU1,800 (CU1,000 per year for Years 3 and 4 multiplied by 90 percent). Historical data indicates that few contracts are cancelled by similar contracts and customers. In evaluating the substantive nature of the termination clause in the contract, the entity considers all pertinent facts and circumstances. The entity determines that because (1) few contracts are cancelled based on experience with similar contracts and customers, and (2) the termination penalty constitutes the majority of outstanding payments under the contract, thereby making it unlikely for the customer to cancel the contract due to this penalty, the termination penalty is substantive. Consequently, a contract term of four years is deemed appropriate.

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Reassessment of collectability If concerns arise regarding the collectability of consideration due from a customer for a contract that previously met the criteria in IFRS 15, an entity is not automatically required to reassess whether the contract still meets those criteria. Reassessment is only necessary when the concerns stem from a significant change in facts and circumstances. Example demonstrates a scenario where a change in the customer’s financial condition is so substantial that a reassessment of the criteria in IFRS 15 becomes necessary. This reassessment results in the collectability criterion not being met, preventing the entity from recognizing further revenue under the contract until collectability becomes probable or the criteria in IFRS 15 are fulfilled. The entity also evaluates any related contract assets or accounts receivable for impairment. Additionally, the example illustrates that a customer’s credit risk may reasonably fluctuate throughout the term of a contract, particularly in long-term contracts. Minor changes in credit risk do not necessarily invalidate the contract.

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Example Reassessing the criteria for identifying a contract An entity licences a patent to a customer in exchange for a usage-based royalty. At contract inception, the contract meets all the criteria in IFRS 15 and the entity accounts for the contract with the customer in accordance with the requirements in IFRS 15. The entity recognises revenue when the customer’s subsequent usage occurs in accordance with IFRS 15. Throughout the first year of the contract, the customer provides quarterly reports of usage and pays within the agreed-upon period. During the second year of the contract, the customer continues to use the entity’s patent, but the customer’s financial condition declines. The customer’s current access to credit and available cash on hand are limited. The entity continues to recognise revenue on the basis of the customer’s usage throughout the second year. The customer pays the first quarter’s royalties but makes nominal payments for the usage of the patent in Quarters 2–4. The entity accounts for any impairment of the existing receivable in accordance with IFRS 9 Financial Instruments. During the third year of the contract, the customer continues to use the entity’s patent. However, the entity learns that the customer has lost access to credit and its major customers and thus the customer’s ability to pay significantly deteriorates. The entity therefore concludes that it is unlikely that the customer will be able to make any further royalty payments for ongoing usage of the entity’s patent. As a result of this significant change in facts and circumstances, in accordance with IFRS 15, the entity reassesses the criteria in IFRS 15 and determines that they are not met because it is no longer probable that the entity will collect the consideration to which it will be entitled. Accordingly, the entity does not recognise any further revenue associated with the customer’s future usage of its patent. The entity accounts for any impairment of the existing receivable in accordance with IFRS 9 Financial Instruments.

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Requirement to consider whether a contract should be accounted for under IFRS 15 following a contract modification If a contract with a customer, which previously met the criteria in IFRS 15, undergoes a modification, it doesn’t always necessitate a reassessment of whether the contract still meets those criteria. Whether reassessment is needed depends on the nature of the contract modification and the circumstances surrounding it, as outlined in IFRS 15. For instance, a contract modification might occur due to a significant deterioration in the customer’s ability to pay, indicating a change in the expectation of collectability since contract inception. In such cases, it should be evaluated as discussed in earlier paragraphs. The accounting treatment for modifications of contracts that continue to meet the criteria in IFRS 15 is outlined in IFRS 15 to 21.

Contracts with customers – required criteria

The following criteria should be met before an entity accounts for a contract with a customer:

1. the contract has been approved (in writing, orally, or in accordance with other customary business practices) and the parties are committed to perform their respective obligations,
2. the entity can identify each party’s rights;
3. the entity can identify the payment terms;
4. the contract has commercial substance; and
5. it is probable that the entity will collect the consideration to which it is entitled for transferring the goods and services to the customer.

Written sales agreement being prepared but not yet signed An inquiry arises regarding the appropriateness of applying the revenue recognition model in IFRS 15 when an entity does not possess a finalized written sales agreement but is in the process of preparing one. Under IFRS 15, an entity applies the revenue recognition model when there exists an agreement between two or more parties that establishes enforceable rights and obligations. Whether the terms of agreement are documented in writing, orally, or indicated through other means (such as customary business practices), a contract is deemed to exist if it establishes enforceable rights and obligations against the parties involved. The determination of enforceability of contractual rights or obligations is a legal matter, and the factors influencing enforceability can vary across jurisdictions. Typically, a written contract serves as the strongest evidence of an enforceable agreement, particularly if it aligns with the seller’s standard practice of utilizing written contracts. While IFRS 15 does not mandate a written contract as proof of agreement, the preparation of a contract that has yet to be signed may indicate that an agreement has not been finalized. Therefore, entities should exercise caution before recognizing revenue in such scenarios, as the absence of a clear contractual understanding between the parties may suggest that the conditions specified in IFRS 15 have not been satisfied.

The contract has been approved and the parties are committed to perform their respective performance obligations

This first criterion has two separate, but interrelated, components.

The contract has been approved

A contract necessitates approval from the involved parties in the transaction. While approval can be documented in writing, it may also be conveyed orally or implied through an entity’s established practices or the mutual understanding between the parties. The absence of approval from both parties raises doubts about whether a contract establishes enforceable rights and obligations against them. Therefore, all pertinent facts should be evaluated to ascertain whether a contract has received approval.

It is not advisable to defer revenue recognition solely due to the absence of a written contract if there exists substantial evidence indicating that the agreement has been approved and that the parties involved are committed to fulfilling (or have already fulfilled) their respective obligations.

Product delivered without a written contract A seller’s practice is to obtain written and customer-signed sales agreements. It delivers a product to a customer without a signed agreement, based on a request by the customer to fulfil an urgent need. Question Can an enforceable contract exist if the seller has not obtained a signed agreement in accordance with its customary business practice? Answer The determination depends on various factors. The seller must assess whether a legally binding contract exists, even in the absence of a signed agreement. The customary practice of obtaining written agreements does not automatically negate the possibility of an oral agreement constituting a contract. Instead, the seller should evaluate whether the oral arrangement fulfills all the necessary criteria to qualify as a contract.

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Contract extensions The service provider and the customer have a 12-month agreement wherein the customer pays C1,000 per month for services. The agreement expires on 30 November 20X6, without automatic extensions. On 28 February 20X7, the parties sign a new agreement stipulating a fee increase to C1,250 per month, effective retrospectively from 1 December 20X6. During December, January, and February, the customer continues to pay C1,000 per month, while the service provider continues rendering services. The dispute between the parties concerns negotiations over rates under the new contract, with no performance issues arising during the expired period. Question Does a contract exist in December, January and February (prior to the new agreement being signed)? Answer In this scenario, it seems that a contractual relationship persists as the service provider continues rendering services and the customer maintains payment at C1,000 per month. However, since the initial agreement has expired without automatic extension provisions, determining the existence of a contract during the interim period from December to February necessitates understanding the legal enforceability of the arrangement in the relevant jurisdiction, especially in the absence of a written contract. If both parties hold enforceable rights and obligations during the renegotiation phase, a contract is deemed to exist, and revenue recognition should not be delayed solely due to the absence of a formal written agreement. Should management ascertain the existence of a contract during the renegotiation period, the guidance on variable consideration applies to estimating the transaction price, encompassing considerations on whether any amounts should be constrained.

The parties are committed to perform their obligations

The parties should be committed to perform their respective obligations under the contract. Termination clauses are a key consideration in determining whether a contract exists.

Free trial period A service provider offers to provide three months of free service on a trial basis to all potential customers to encourage them to sign up for a paid subscription. At the end of the three-month trial period, a customer signs up for a non-cancellable paid subscription to continue the service for an additional 12 months. Question Should the service provider record revenue related to the three-month free trial period? Answer No, a contract is not considered to be in effect until the customer commits to purchasing the 12 months of service. The contractual rights and obligations exclusively cover the future 12-month period of paid subscription services, excluding the duration of the free trial. Consequently, the service provider should not recognize revenue pertaining to the three-month free trial period, meaning that none of the transaction price should be allocated to the three months already provided. Instead, the service provider should recognize the transaction price as revenue prospectively as the 12 months of services are delivered.

A contract does not exist if neither party has performed and either party can unilaterally terminate the wholly unperformed contract without compensating the other party. A wholly unperformed contract is one in which the entity has neither transferred the promised goods or services to the customer, nor received, or become entitled to receive, any consideration. Wholly unperformed contracts have no effect on an entity’s financial position.

Situations where only one party can terminate a wholly unperformed contract without penalty could have an effect on an entity’s financial position and performance, as the entity that cannot cancel might be obligated to stand ready to perform at the discretion of the other party.

The assets and liabilities in a wholly unperformed, noncancellable contract will offset each other. The entity will, however, need to consider the disclosure requirements in the standard, such as disclosures about the remaining performance obligations in the contract.

The entity can identify each party’s rights

An entity should be able to identify each party’s rights regarding the goods and services promised in the contract.

Free trial period with early acceptance A service provider offers to provide three months of free service on a trial basis to all potential customers, to encourage them to sign up for a paid subscription. One month before the free trial period is completed (that is, during month two of the three-month trial period), a customer signs up for a 12-month service arrangement. Question Should the service provider record revenue for the remaining portion of the free trial period? Answer It varies. Given that the contract was finalised before the conclusion of the free trial period, the service provider must exercise discretion to ascertain whether the remaining duration of the free trial is encompassed within the contract with the customer. Management should evaluate whether the contractual rights and obligations pertain to the one-month remainder of the free trial period, or solely to the forthcoming 12 months of paid subscription service. If management determines that the remaining free trial period is indeed part of the contract with the customer, revenue should be recognised prospectively over a span of 13 months. This entails acknowledging revenue as services are provided over both the remaining trial period and the subsequent 12-month subscription period.

Revenue cannot be recognised related to a contract where the rights of each party cannot be identified, because the entity would not be able to assess when it has transferred control of the goods or services.

The entity can identify the payment terms

The payment terms for goods or services should be known before a contract can exist; this is because, without that understanding, an entity cannot determine the transaction price. This does not require that the transaction price be fixed.

The contract has commercial substance

A contract has commercial substance if the risk, timing or amount of the entity’s future cash flows will change as a result of the contract. There should also be a valid business reason for the contract.

A change in future cash flows does not only apply to cash consideration. Future cash flows can also be affected where the entity receives non-cash consideration, as the non-cash consideration might result in increased cash inflows or reduced cash outflows in the future.

Collection of the consideration is probable

The aim of the collectability evaluation is to ascertain the existence of a substantive transaction, indicating a valid contract between the entity and its customer. The revenue guidance is only applied to contracts when there is a “probable” likelihood that the entity will collect the consideration it is owed for the goods or services provided to the customer. This assessment considers any anticipated price concessions to be granted to the customer. Initially, management must determine whether the entity anticipates accepting less consideration than what the customer is contractually obliged to pay. If a price concession is expected, the entity should evaluate the likelihood of collecting the adjusted transaction price (factoring in estimated concessions). This assessment should encompass both the customer’s capability and intention to settle the amounts owed.

Evaluating the customer’s intent to fulfill their payment obligation necessitates considering all pertinent factors, such as the entity’s historical interactions with its customers and any collateral obtained from the customer. Differentiating between an expected price concession and the entity’s exposure to the customer’s credit risk may require discerning judgment. This differentiation is crucial because a price concession constitutes variable consideration, affecting the transaction price, whereas it does not directly influence the assessment of collectability, which focuses on determining the contract’s validity

Distinction between a price concession and customer credit risk When determining the presence of a price concession, several factors warrant consideration, extending beyond an entity’s historical practices. These factors include the entity’s customary procedures, publicly disclosed policies, and explicit statements regarding the acceptable amount of consideration. The evaluation should encompass broader aspects beyond prior business practices. For instance, an entity might engage with a new customer with the intention of granting a price concession as part of cultivating the relationship.

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Assessing collectability for a portfolio of contracts It’s not uncommon for an entity’s past experience to suggest that it might not collect all of the consideration related to a group of contracts. In such cases, management may still consider collection to be likely for each individual contract within the group, even if it expects that some customers may not fulfill all payment obligations. The entity should utilize the revenue model to ascertain the transaction price, factoring in any anticipated price concessions, and recognize revenue presuming full collection of the entire transaction price. Additionally, management should conduct a separate assessment of the contract asset or receivable for impairment in accordance with IAS 39/IFRS 9.

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Wholesaler’s sunglass sale A wholesaler sells sunglasses to numerous customers through similar contracts. Before onboarding a new customer, the wholesaler conducts customer acceptance and credit checks to ensure the likelihood of payment. The wholesaler adheres strictly to its customer acceptance criteria and will not engage with any customer that fails to meet these standards. In January 20X8, the wholesaler delivers sunglasses to several customers, receiving consideration totaling C100,000. After assessing the situation, the wholesaler determines that control of the sunglasses has been transferred to the customers, with no remaining performance obligations. Based on its established procedures, the wholesaler concludes that collection is probable for each customer. However, historical data suggests that, on average, the wholesaler collects only 95% of the billed amounts. The wholesaler considers this historical trend indicative of future expectations. Despite this, the wholesaler intends to actively pursue full payment from customers and does not anticipate offering any price concessions. Question How much revenue should the wholesaler recognise? Answer Because collection is probable for each customer, the wholesaler should recognise revenue of C100,000 when it transfers control of the sunglasses. The wholesaler’s historical collection experience does not impact the transaction price in this fact pattern because it concluded that the collectability threshold was met (that is, the contracts were valid) and it did not expect to provide any price concessions. The wholesaler should evaluate the related receivable for impairment based on the relevant financial instruments standard.

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Where an entity provides payment terms that are extended beyond normal terms in a contract with a new customer, should management conclude that the amounts subject to the extended payment terms are not probable of collection? It depends. Extended payment terms should be considered when assessing the customer’s ability and intent to pay the consideration when it is due; however, the mere existence of extended payment terms is not determinative in the collectability assessment. Management’s conclusion about whether collection is probable will depend on the relevant facts and circumstances. Management should also consider in this fact pattern whether the entity expects to provide a concession to the customer and whether the payment terms indicate that the arrangement includes a significant financing component (see para 11.95 onwards).

Arrangements where criteria are not met

An arrangement is not accounted for under the revenue standard until all the criteria are met. If an arrangement does not meet all of the criteria, management will need to re- assess the arrangement at each reporting period to determine if the criteria are met.

Where a contract with a customer does not meet the criteria and an entity receives consideration from the customer, the entity recognises the consideration received as a liability. The liability recognised represents the entity’s obligation either to transfer goods or services in the future or to refund the consideration received. In either case, the liability is measured at the amount of consideration received from the customer.

1. The entity recognises the consideration received as revenue only when one of the following events occurs:

• the entity has no remaining obligations to transfer goods or services to the customer, and all (or substantially all) of the consideration promised by the customer has been received by the entity and is non-refundable; or

Can an entity recognise revenue for non-refundable consideration received if it continues to pursue collection for remaining amounts owed under the contract (for an arrangement that does not meet all of the criteria to establish a contract with enforceable rights and obligations)? The determination varies. In certain instances, entities may continue their collection efforts for a significant duration after ceasing the provision of promised goods or services to the customer. Management needs to evaluate whether the discussed criteria are fulfilled. It is conceivable that management might deem a contract as terminated even if the entity persists in collection activities, provided that the entity has ceased delivering goods or services and has no further obligation to provide additional goods or services to the customer.

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If an entity begins activities related to a performance obligation for which control will transfer over time (for example, it begins manufacturing a customised good) before a contract meets the criteria described, how should progress be measured once the contract subsequently meets the criteria? The method for measuring progress of a performance obligation fulfilled over time should mirror the entity’s advancement in transferring control of goods or services. Consequently, upon the establishment of a contract, the entity typically records revenue for any goods or services already transferred to the customer in a cumulative manner. However, entities typically do not recognize revenue on a cumulative basis for separate goods or services rendered at no cost prior to the inception of the contract, such as those provided during a “free trial” period.

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Identifying the contract: collection not probable At the outset, an entity sells equipment to a customer, including three years of maintenance, for a total price of C1 million, payable in monthly instalments across the three-year period. Upon contract inception, the entity determines that the customer lacks the ability to make timely payments, rendering collection of the consideration improbable. However, the entity plans to pursue collection efforts and does not intend to offer any price concessions. Despite delivering the equipment at the contract’s start, the customer only makes a partial payment of C200,000 by the end of the first year. Despite continuing to provide maintenance services, the entity still deems the collection of the outstanding consideration improbable. Question Can the entity recognise revenue for the partial payment received? Answer No, the entity cannot recognize revenue for the partial payment received since it has determined that collection is unlikely. Revenue recognition for cash received from the customer is contingent upon meeting specific criteria, which have not been fulfilled in this scenario. Despite the entity’s ongoing provision of services and the absence of contract termination, it must continue reassessing collectability in each reporting period.

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Example Collectability criterion not met An entity, a real estate developer, contracts with a customer to sell a building for CU1 million, with the customer intending to establish a restaurant within the premises. The building is situated in a competitive area for new restaurants, and the customer possesses limited experience in the restaurant industry. Upon contract inception, the customer remits a non-refundable deposit of CU50,000 and arranges a long-term financing agreement with the entity to cover the remaining 95% of the agreed consideration. This financing agreement operates on a non-recourse basis, allowing the entity to reclaim the building in case of customer default without pursuing additional compensation from the customer, even if the collateral does not fully cover the outstanding amount owed. The entity’s cost for the building is CU600,000, with the customer assuming control of the property upon contract commencement. In assessing whether the contract meets the criteria in IFRS 15, the entity concludes that the criterion in IFRS 15is not met because it is not probable that the entity will collect the consideration to which it is entitled in exchange for the transfer of the building. In reaching this conclusion, the entity observes that the customer’s ability and intention to pay may be in doubt because of the following factors: (a) the customer intends to repay the loan (which has a significant balance) primarily from income derived from its restaurant business (which is a business facing significant risks because of high competition in the industry and the customer’s limited experience); (b) the customer lacks other income or assets that could be used to repay the loan; and (c) the customer’s liability under the loan is limited because the loan is non-recourse. Because the criteria in IFRS 15 are not met, the entity applies IFRS 15 and 16 to determine the accounting for the non-refundable deposit of CU50,000. The entity observes that none of the events described in IFRS 15 have occurred – that is, the entity has not received substantially all of the consideration and it has not terminated the contract. Consequently, in accordance with IFRS 15, the entity accounts for the non-refundable CU50,000 payment as a deposit liability. The entity continues to account for the initial deposit, as well as any future payments of principal and interest, as a deposit liability, until such time that the entity concludes that the criteria in IFRS 15 are met (ie the entity is able to conclude that it is probable that the entity will collect the consideration) or one of the events in IFRS 15 has occurred. The entity continues to assess the contract in accordance with IFRS 15 to determine whether the criteria in IFRS 15 are subsequently met or whether the events in IFRS 15 have occurred.

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Accounting for the ‘mining’ of Bitcoins In blockchain technology, which forms the basis of Bitcoin, “miners” generate new blocks added to the blockchain using a “proof-of-work” method. Miners employ significant computational power, known as “brute force,” to solve a designated algorithm and find a unique identifier meeting specified parameters outlined in the cryptocurrency’s protocol. Upon discovering a solution, the miner adds this new “block” to the blockchain, enabling them to record the next batch of pending Bitcoin transactions. As a reward for this activity, the miner receives: A reward consisting of newly “minted” units of Bitcoins for successfully identifying a new block. Any transaction fees, also paid in Bitcoins, by the parties involved in the Bitcoin transactions seeking processing and confirmation. Participation in mining activity is voluntary, and miners can cease their operations at any time. Additionally, there is no specific party obligated to provide new Bitcoin units to successful miners. The entitlement to a reward is determined by the protocol. Transaction fees are typically determined by agreement between transacting parties, often through a bidding process based on the demand for block space. The following discussion explores how a Bitcoin miner should account for these activities. Income Revenue should be recognized at the fair value of the Bitcoins received at the time they are earned, both for identifying a new block and for transaction fees. Regarding the “reward” for identifying a new block, the miner does not have a contractual agreement with a specific party for generating a valid identifier. Instead, all parties in the blockchain adhere to the same protocol. Therefore, the definition of a customer in IFRS 15, which requires a party to have contracted with an entity for goods or services in exchange for consideration, is not applicable in this context. Nevertheless, the miner receives an asset (Bitcoins) upon generating a new block, leading to recognition of income if it can be reliably measured. This income should be presented as revenue, albeit not revenue from contracts with customers. In contrast, the transaction fee is received from the parties involved in the recorded transaction, who share a common understanding that the miner solving the next block first will be entitled to the transaction fee. These parties are considered the miner’s customers, and recognition of revenue related to the transaction fee is subject to the requirements of IFRS 15. In both cases, the consideration received is in the form of Bitcoins, not cash. Therefore, in accordance with IFRS 15, or by analogy to those requirements in the case of the “reward” for identification, revenue should be measured at the fair value of the received Bitcoins. Subsequently, the received Bitcoins should be classified as an intangible asset under IAS 38 or, if held for sale in the ordinary course of business, as inventory under IAS 2. Costs The costs the miners incur, which can be substantial, cannot be related to a particular transaction for which the miner will receive consideration (i.e. they do not meet the asset recognition criteria and so will be expensed as incurred). Property, plant and equipment used in the mining activities would be depreciated over its useful life in accordance with IAS 16.

Re-assessment of criteria

Once an arrangement has met the criteria, management does not re-assess the criteria again unless there are indications of significant changes in circumstances. Refer to Revenue TRG memo no. 13 and the related meeting minutes in Revenue TRG memo no. 25 for further discussion of this topic.

Re-assessment of customer contract criteria An entity may initially determine the existence of a contract with a customer, but later encounter a significant deterioration in the customer’s ability to pay for future goods or services. In such cases, management must evaluate whether it is probable that the customer will pay the consideration for the remaining goods or services yet to be provided. If it is not probable that the entity will collect the consideration for future goods or services, the entity will account for the remaining portion of the contract as if the criteria for a contract had not been met. However, this assessment does not impact assets and revenue already recognized for performance obligations that have been satisfied. Those assets are evaluated for impairment under the relevant financial instruments standard.

Combining contracts

Multiple contracts will need to be combined and accounted for as a single arrangement where the economics of the individual contracts cannot be understood without reference to the arrangement as a whole.

An entity should combine two or more contracts entered into at or near the same time with the same customer (or ‘related parties’, as defined in IAS 24, of the customer) and account for the contracts as a single contract if one or more of the following criteria are met:

1. the contracts are negotiated as a package, with a single commercial objective;
2. the amount of consideration to be paid in one contract depends on the price or performance of the other contract; or
3. the goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation.

When is there a single commercial objective suggesting that contracts should be combined? If one contract would result in a loss without considering the consideration received from another contract, they may be viewed as having a single commercial objective. Additionally, contracts should be consolidated if the performance delivered under one contract influences the payment to be made under another contract. This scenario arises when non-performance under one contract impacts the payment amount specified in another contract.

The guidance on identifying performance obligations should be considered whenever entities have multiple contracts with the same customer that were entered into at or near the same time. Promises in a series of contracts that are combined but are not distinct cannot be accounted for as if they are distinct solely because they arise from different contracts.

Contract modifications

A contract modification could change the scope of the contract, the price of the contract, or both. A contract modification exists where the parties to the contract approve the modification either in writing, orally, or based on the parties’ customary business practices. There is a contract modification when the contracting parties approve the modification that either creates new or changes existing enforceable rights and obligations of the contracting parties.

Judgement will be needed to determine whether changes to existing rights and obligations should have been accounted for as part of the original arrangement (that is, they should have been anticipated due to the entity’s business practices) or accounted for as a contract modification. Contract modifications are accounted for either as a separate contract or as part of the existing contract, depending on the nature of the modification. If a modification is not approved, management should continue to account for the existing terms of the contract until the modification is approved.

Could a new agreement with an existing customer be a modification of an existing contract? A fresh agreement with an existing customer could qualify as a modification of an ongoing contract, even if it’s not explicitly structured as an alteration to the terms and conditions of the existing agreement. For instance, a vendor might engage in a contract to deliver services to a customer over a two-year period. Within the contract duration, the vendor might strike a new deal to supply different goods or services to the same customer. Management should scrutinize whether the new contract constitutes a modification of the existing one. Considerations could include whether the terms and conditions of the new contract were negotiated separately from the original one and whether the pricing of the new contract hinges on the pricing of the existing one. If the new contract involves distinct goods or services priced at their stand-alone selling prices, it should be accounted for separately, irrespective of whether it’s deemed a contract modification. However, if the goods or services are offered at a discount to the stand-alone selling price, management must delve into the rationale behind the discount, as it could suggest that the new contract is a modification of the existing one.

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Modification including adjustments to transaction price of goods or services already transferred A contract modification agreement may entail adjustments to the transaction price of goods or services already provided to the customer. For instance, as part of a contract modification, an entity might agree to issue a partial refund due to customer satisfaction issues pertaining to goods already delivered. The entity should treat the refund as a separate adjustment because it pertains to the transaction price of goods previously transferred. Therefore, the entity should promptly recognize the refund amount as a reduction of revenue and exclude it from the application of the modification guidance. Determining when a portion of a price modification warrants separate accounting could involve substantial judgment. Example 5, Case B of the revenue standard offers an illustration of this concept.

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Does the contract modification guidance apply when the parties agree to terminate a contract? An entity and its customer agree to terminate an existing contract and enter into a new contract rather than modify the existing contract. Question Does the contract modification guidance apply in this situation? Answer If, in substance, the parties have altered the existing contract, management should apply the contract modification guidance to determine the appropriate accounting, even if the modification is structured as a termination of the existing contract followed by the creation of a new contract.

The parties to an arrangement might agree a change in scope, but not the corresponding change in price (for example, an unpriced change order). The entity should estimate the change to the transaction price in accordance with the guidance on estimating variable consideration. Management should assess all relevant facts (for example, prior experience with similar modifications) to determine whether there is an expectation that the change in price will be approved.

Unpriced change order A contractor engages in a contract with a customer for the construction of a warehouse. While preparing the site, environmental issues surface that necessitate remediation before construction can commence. With the customer’s approval, the contractor undertakes the remediation efforts, but the pricing for these services remains to be determined in the future, constituting an unpriced change order. Upon completing the remediation, the contractor invoices the customer for C2 million, comprising incurred costs plus a profit margin in line with the project’s overall expected margin. The invoiced amount exceeds the customer’s anticipated payment, prompting the customer to dispute the charge. Following consultation with external legal counsel and adherence to the contractor’s customary business practices, the contractor determines that the performance of remediation services establishes enforceable rights and deems the invoiced amount reasonable for the services rendered. Question Is the contract modification approved such that the contractor can account for the modification? Answer Yes. Despite the lack of agreement on the specific amount that the contractor will receive for the services, the contract modification is approved and the contractor can account for the modification. The scope of work has been approved; therefore, the contractor should estimate the corresponding change in transaction price in accordance with the guidance on variable consideration.

The modification is a separate contract

Treating a modification as a distinct contract acknowledges the economic equivalence between entering into a separate contract and modifying an existing one. When the scope of a contract expands due to the inclusion of distinct goods or services, and the contract price rises to reflect the entity’s stand-alone selling prices for the additional promised goods or services, along with any necessary adjustments, the entity accounts for the modification as a separate contract.

What is ‘stand-alone selling price’ in the context of a contract modification? The guidance allows for flexibility in defining the “stand-alone selling price” to accommodate the unique circumstances of the contract. This flexibility recognizes that entities may offer discounts to recurring customers that they wouldn’t offer to new customers. The goal is to ascertain whether the pricing reflects what the entity would have negotiated independently of any other existing contracts.

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Sale of additional goods A manufacturer initially agrees to sell 100 goods to a customer for C10,000 (C100 per good). These goods are distinct and delivered to the customer over six months. In the fourth month, the parties modify the contract to include the sale of an extra 20 goods at C95 each. The price of these additional goods aligns with their stand-alone selling price at the time of the modification. Question Should the manufacturer account for the modification as a separate contract? Answer Yes. The modification to sell an additional 20 goods for C95 each should be accounted for as a separate contract, because the additional goods are distinct and the price reflects their stand-alone selling price. The existing contract would not be affected by the modification.

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Blend-and-extend modification A manufacturer initially enters into a non-cancellable three-year contract to supply 100 products annually at a fixed price of C90 per unit. However, market prices for these products decrease after the contract begins. By the end of the second year, when the market price drops to C80 per unit, the parties agree to modify the contract. The modification involves extending the contract for an additional year with the same fixed annual quantity and adjusting the sales price to a ‘blended’ rate of C85 per unit for all remaining units. This blended rate combines the original price of C90 per unit for the remaining units from the original contract with the reduced market price of C80 per unit for the additional units. The manufacturer determines that the products to be delivered in the future are distinct from those already delivered, and it assesses the stand-alone selling price at C80 per unit. Question How should the manufacturer account for the modification? Answer The ‘blend-and-extend’ modification allows the customer to immediately benefit from a lower price. However, in this scenario, the essence of the modification is that the parties agreed to add distinct goods for additional consideration that reflects the stand-alone selling price. Consequently, it may be appropriate for the manufacturer to treat the modification as a separate contract. Under this approach, the manufacturer would continue to recognize revenue of C90 per unit for the remaining period of the original contract, and C80 per unit in the subsequent year. Management needs to assess all relevant facts and circumstances to determine if the additional consideration reflects the stand-alone selling price, which may involve significant judgment. If the additional consideration doesn’t reflect the stand-alone selling price, the modification should be accounted for as the termination of the existing contract and the creation of a new one, and revenue would be recognized based on the blended price for all units. For instance, the additional consideration might not reflect the stand-alone selling price if quantities are variable, prices are expected to change significantly in the future, or if there’s a significant financing component in the arrangement.

The modification is not a separate contract

A modification that does not meet the above criteria to be accounted for as a separate contract is accounted for as an adjustment to the existing contract, either prospectively or through a cumulative catchup adjustment. The determination depends on whether the remaining goods or services to be provided to the customer under the modified contract are distinct.

The modification is accounted for prospectively

If the goods or services remaining after a modification are distinct from those transferred before the modification, yet the consideration for them doesn’t reflect their stand-alone selling prices, considering contract-specific circumstances, the entity should account for the modification prospectively. In such cases, the modification is treated as the termination of the original contract and the creation of a new one. The amount of consideration allocated to the remaining performance obligations after the modification comprises the sum of any consideration initially included in the transaction price of the contract before modification (that hadn’t been recognized as revenue), and the consideration promised as part of the modification.

Should an existing contract asset be written off as a reduction of revenue when a modification is accounted for as the termination of the original contract and creation of a new contract? Typically, no. Even though the original contract is technically “terminated,” entities should generally account for modifications of this nature on a prospective basis. In other words, the contract asset typically pertains to the right to consideration for goods and services already provided. However, management should assess whether the modification leads to an impairment of the contract asset.

An entity will account for a contract modification prospectively if the contract contains a single performance obligation that comprises a series of distinct goods or services. The modification will only affect the accounting for the remaining distinct goods and services to be provided in the future, even if the series of distinct goods or services is accounted for as a single performance obligation.

Contract modifications: series of distinct services Entity D initially enters into a three-year non-cancellable service contract with a customer for C450,000 (C150,000 per year), where the stand-alone selling price for one year of service is also C150,000. The contract is accounted for as a series of distinct services. However, at the end of the second year, the parties agree to modify the contract in two ways: first, the fee for the third year is reduced to C120,000, and second, the customer extends the contract for an additional three years for C300,000 (C100,000 per year). The stand-alone selling price for one year of service at the time of modification is C120,000. Question How should entity D account for the modification? Answer The modification should be treated as a termination of the existing arrangement and the creation of a new contract, leading to prospective accounting. While the remaining services are distinct, the modification doesn’t involve an increase in consideration reflecting the stand-alone selling price of the additional services. Thus, it shouldn’t be accounted for as a separate contract. Entity D should redistribute the remaining consideration across all remaining services, including both original and new obligations. This means recognizing a total of C420,000 (C120,000 + C300,000) over the four-year service period (comprising one remaining year under the original contract and three additional years), resulting in C105,000 per year.

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Contract modifications: modification accounted for on a prospective basis Entity E should account for the modification as a termination of the existing contract and the creation of a new contract because the remaining goods to be delivered are distinct from those previously provided, and the additional consideration does not reflect their stand-alone selling price. The one-time payment of C10,000 should be allocated to the identifiable goods or services to be provided under the modified contract. The consideration for the remaining goods should be reallocated to all remaining performance obligations, including both the original and new obligations. Therefore, Entity E should recognize revenue over the extended contract period based on the redefined consideration and the remaining performance obligations, ensuring that it reflects the changes made to the contract terms. Question How should entity E account for the modification? Answer Entity E should approach the modification on a prospective basis. The transaction price of C390,000 (C2 per unit × 200,000 remaining goods less C10,000 payment to the retailer) should be allocated to the remaining performance obligations, resulting in revenue of C1.95 per unit (C390,000 / 200,000 goods). The C10,000 payment to the retailer is a reduction of the transaction price allocated to the remaining goods in this scenario, as the payment was made in connection with the contract renegotiation and doesn’t appear to relate to prior performance. However, if there were indications of a dispute or failure to perform as per the contract terms concerning the previously delivered goods, it might suggest that Entity E agreed to a concession, reducing the transaction price for those goods. In such a case, the concession amount would be recorded immediately. Determining when a modification involves a price concession could require significant judgement. This concept is demonstrated in Example 5, Case B of the revenue standard.

The modification results in a cumulative catch-up adjustment

An entity accounts for a modification through a cumulative catch-up adjustment if the remaining goods or services in the modification are not distinct and are part of a single performance obligation that is only partially satisfied when the contract is modified. This type of contract modification is treated as if it were part of the original contract. The effect that the modification has on the transaction price, and the measure of progress towards complete satisfaction of the performance obligation, is recognised as an adjustment to revenue at the date of modification. Example 8 of the revenue standard illustrates this concept.

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Partial termination of a contract An entity engages in a contract with a customer to deliver specific services over a defined period at predetermined prices. These services are distinct and qualify under IFRS 15 as a single performance obligation fulfilled over time. The contract lacks an early termination clause, meaning the customer cannot terminate it prematurely without penalty. However, during the contract term, the customer negotiates with the entity to pay a penalty to terminate certain portions of the contract. The partial termination constitutes a contract modification under IFRS 15 as it alters the scope and price of the contract. However, it does not fulfill the criteria to be treated as a separate contract because it doesn’t expand the contract’s scope. As the remaining services after the partial termination are distinct from those provided before, the modification is accounted for as a termination of the existing contract and creation of a new one according to IFRS 15. Consequently, the penalty paid by the customer isn’t recognized as revenue upon partial termination but is allocated to the remaining performance obligations. For instance, Provider P has a contract to supply Customer C with 25 hours of regular cleaning services monthly for five years at CU1,000 per month (totaling CU60,000), representing the stand-alone selling price for cleaning services at contract initiation. Provider P treats the contract as a series of distinct services under IFRS 15, satisfied over time, using an output method based on time elapsed to measure progress. At the end of Year 1, due to a decline in the cleaning services market and a change in Customer C’s needs, both parties agree to shorten the contract term to two years. Customer C agrees to compensate Provider P with CU6,000 for the lost contract value. Provider P treats the partial termination as a contract modification under IFRS 15. Since the modification doesn’t increase the contract’s scope, it’s accounted for prospectively, considering it as a termination of the original agreement and creation of a new one. Provider P recognizes CU30,000 (CU12,000 per year for Years 2 and 3 plus the CU6,000 compensation) over the revised two-year contract period.

Changes in the transaction price

The transaction price might change as a result of contract modifications. A contract modification that only affects the transaction price is either accounted for prospectively or on a cumulative catch-up basis:

• It is accounted for prospectively if the remaining goods or services are distinct.
• There is a cumulative catch-up if the remaining goods or services are not distinct.

The transaction price might also change as a result of changes in circumstances or the resolution of uncertainties.

Where the transaction price changes as a result of a change in circumstances or changes in variable consideration after a contract has been modified:

1. An entity allocates the change in the transaction price to the performance obligations identified in the contract before the modification if, and to the extent that, the change in the transaction price is attributable to an amount of variable consideration promised before the modification and the modification is accounted for prospectively.
2. In all other cases in which the modification was not accounted for as a separate contract, an entity allocates the change in the transaction price to the performance obligations in the modified contract (that is, the performance obligations that were unsatisfied or partially unsatisfied immediately after the modification).