IFRS 15 – Variable Consideration Question

Hi Sir,

I am really struggling to get my head around variable consideration and its application. If you could kindly explain how to recognise the revenue and what amounts to recognise in the below example that would be much appreciated.

In the example below can we assume:-
1. At contract inception Company A believes it will meet the target and the bonus will be achieved
2. At the end of the second year, due to unforeseen circumstances, Company A believes it will now not meet the deadline of 31-12-2022

Q. On 01-January-2020 Company A enters into a three year contract to construct a major installation for its customer Company B. The contract is highly incentivised with a basic contract price of £6m with a bonus of £6m payable to Company A if the contract is completed by 31-December-2022. Company determines that the recognition of the contract revenue should be on a straight line basis over the three years of the contract.

How should revenue be recognised over the term of the contract?