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is the method that the entity expects to better predict the amount of consideration to which it will be
entitled. Using the expected value method, the entity estimates that 970 products will not be returned. The
entity estimates that the costs of recovering the products will be immaterial and expects that the returned

products can be resold at a profit. Determine the amount of revenue, refund liability and the asset to be
recognised by the entity for the said contracts.
SOLUTION

● The entity considers the requirements of Ind AS 115 on constraining estimates of variable consideration
to determine whether the estimated amount of variable consideration of Rs. 48,500 (Rs. 50 × 970
products not expected to be returned) can be included in the transaction price.
● The entity considers the factors of Ind AS 115 and determines that although the returns are outside

the entity's influence, it has significant experience in estimating returns for this product and customer
class. In addition, the uncertainty will be resolved within a short time frame (ie the 30-day return
period).
Thus, the entity concludes that it is highly probable that a significant reversal in the cumulative amount of
revenue recognised (i.e. Rs. 48,500) will not occur as the uncertainty is resolved (i.e. over the return period).

● The entity estimates that the costs of recovering the products will be immaterial and expects that the
returned products can be resold at a profit.
● Upon transfer of control of the 1,000 products, the entity does not recognise revenue for the 30
products that it expects to be returned. Consequently, in accordance with paragraphs 55 and B21 of

Ind AS 115, the entity recognises the following:
(a) revenue of Rs. 48,500 (Rs. 50 × 970 products not expected to be returned);
(b) a refund liability of Rs. 1,500 (Rs. 50 refund × 30 products expected to be returned); and
(c) an asset of Rs. 900 (Rs. 30 × 30 products for its right to recover products from customers on settling
the refund liability).

Q15. (MAY 20)
An entity enters into a contract for the sale of Product A for Rs. 1,000. As part of the contract, the entity

gives the customer a 40% discount voucher for any future purchases up to Rs. 1,000 in the next 30 days. The
entity intends to offer a 10% discount on all sales during the next 30 days as part of a seasonal promotion.
The 10% discount cannot be used in addition to the 40% discount voucher.
The entity believes there is 80% likelihood that a customer will redeem the voucher and on an average, a
customer will purchase Rs. 500 of additional products.

Determine how many performance obligations does the entity have & their stand-alone selling price and
allocated transaction price?
SOLUTION

Since all customers will receive a 10% discount on purchases during the next 30 days, the only additional
discount that provides the customer with a material right is the incremental discount of 30% on the products
purchased. The entity accounts for the promise to provide the incremental discount as a separate performance
obligation in the contract for the sale of Product A.
The entity believes there is 80% likelihood that a customer will redeem the voucher and on an average, a

customer will purchase Rs. 500 of additional products. Consequently, the entity‖s estimated stand-alone selling
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