How should sell-down allowances or developer incentives be treated in revenue recognition under IFRS 15?

• A. Subtract from transaction price (variable consideration) using expected value or most likely amount; allocate to performance obligations accordingly.
• B. Add to transaction price as a fixed bonus.
• C. Record as separate revenue unrelated to performance obligations.
• D. Ignore and recognize revenue at completion.

Answer: (C)

Under IFRS 15, any consideration payable to a customer, such as sell-down allowances or developer incentives, is treated as a reduction of the transaction price rather than as separate revenue. In practice, you estimate the amount of the incentive and subtract it from the price you expect to receive for the goods or services, then recognize revenue for the remaining amount and allocate it to the performance obligations. This approach reflects that the incentive is part of the price you’re ultimately charging for delivering those obligations, not an additional income item.

There is an exception: if the incentive gives the customer a material right—an option to obtain additional goods or services at a discount in the future—part of the transaction price must be allocated to that option and accounted for as a separate performance obligation. But typical sell-down allowances or developer incentives are not, on their own, separate revenue; they reduce the contract price and the related revenue recognized.