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Volume is determined based on sales during the calendar year. There are no minimum purchase requirements.
Entity J estimates that the total sales volume for the year will be 2.8 million containers, based on its
experience with similar contracts and forecasted sales to the customer.

Entity J sells 700,000 containers to the customer during the first quarter ended 31 March 20X8 for a contract
price of Rs. 100 per container.
How should entity J determine the transaction price?
SOLUTION

The transaction price is Rs 90 per container based on entity J's estimate of total sales volume for the year,
since the estimated cumulative sales volume of 2.8 million containers would result in a price per container of
Rs 90. Entity J concludes that based on a transaction price of Rs 90 per container, it is highly probable that

a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty is
resolved. Revenue is therefore recognised at a selling price of Rs 90 per container as each container is sold.
Entity J will recognise a liability for cash received in excess of the transaction price for the first 1 million
containers sold at Rs 100 per container (that is, Rs 10 per container) until the cumulative sales volume is
reached for the next pricing tier and the price is retroactively reduced.
For the quarter ended 31st March, 20X8, Entity J recognizes revenue of Rs 63 million (700,000 containers x

Rs 90) and a liability of Rs 7 million [700,000 containers x (Rs 100 - Rs 90)].
Entity J will update its estimate of the total sales volume at each reporting date until the uncertainty is
resolved.

Q5. (RTP MAY 20 & MTP MARCH 20)
Entity K sells electric razors to retailers for Rs. 50 per unit. A rebate coupon is included inside the electric
razor package that can be redeemed by the end consumers for Rs. 10 per unit.

Entity K estimates that 20% to 25% of eligible rebates will be redeemed, based on its experience with similar
programmes and rebate redemption rates available in the market for similar programmes. Entity K concludes
that the transaction price should incorporate an assumption of 25% rebate redemption, as this is the amount
for which it is highly probable that a significant reversal of cumulative revenue will not occur if estimates of
the rebates change.

How should entity K determine the transaction price?
SOLUTION

Entity K records sales to the retailer at a transaction price of Rs 47.50 (Rs 50 less 25% of Rs 10). The
difference between the per unit cash selling price to the retailers and the transaction price is recorded as a
liability for cash consideration expected to be paid to the end customer. Entity K will update its estimate of
the rebate and the transaction price at each reporting date if estimates of redemption rates change.

Q6. (RTP MAY 20 & MTP MARCH 20)
A manufacturer enters into a contract to sell goods to a retailer for Rs 1,000. The manufacturer also offers
price protection, whereby it will reimburse the retailer for any difference between the sale price and the lowest

price offered to any customer during the following six months. This clause is consistent with other price
protection clauses offered in the past, and the manufacturer believes that it has experience which is predictive
for this contract.

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