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Hope you are doing well.
I need some clarification on variable consideration when determining the transaction price and would kindly like you to help me.
The standard states:
“An entity shall include in the transaction price some or all of an amount of variable consideration only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.”
Can you please explain in simple terms what is meant by “a significant reversal in the amount of cumulative revenue recognized”?
I’d appreciate it if you provide an example as well.
Contract for 100 with 10% bonus if you complete on time.
Half way through contract.
Recognise 50% of 100.
Also recognise 50% of 10 if it is VERY VERY LIKELY that you will complete on time.
Best I can do 🙂