The existence of a significant financing component in the contract
60 In determining the transaction price, an entity shall adjust the promised
amount of consideration for the effects of the time value of money if the timing
of payments agreed to by the parties to the contract (either explicitly or
implicitly) provides the customer or the entity with a significant benefit of
financing the transfer of goods or services to the customer. In those
circumstances, the contract contains a significant financing component. A
significant financing component may exist regardless of whether the promise of
financing is explicitly stated in the contract or implied by the payment terms
agreed to by the parties to the contract.
61 The objective when adjusting the promised amount of consideration for a
significant financing component is for an entity to recognise revenue at an
amount that reflects the price that a customer would have paid for the promised
goods or services if the customer had paid cash for those goods or services when
(or as) they transfer to the customer (ie the cash selling price). An entity shall
consider all relevant facts and circumstances in assessing whether a contract
contains a financing component and whether that financing component is
significant to the contract, including both of the following:
(a) the difference, if any, between the amount of promised consideration
and the cash selling price of the promised goods or services; and
(b) the combined effect of both of the following:
(i) the expected length of time between when the entity transfers
the promised goods or services to the customer and when the
customer pays for those goods or services; and
(ii) the prevailing interest rates in the relevant market.
62 Notwithstanding the assessment in paragraph 61, a contract with a customer
would not have a significant financing component if any of the following factors
exist:
(a) the customer paid for the goods or services in advance and the timing of
the transfer of those goods or services is at the discretion of the
customer.
(b) a substantial amount of the consideration promised by the customer is
variable and the amount or timing of that consideration varies on the
basis of the occurrence or non-occurrence of a future event that is not
substantially within the control of the customer or the entity (for
example, if the consideration is a sales-based royalty).
(c) the difference between the promised consideration and the cash selling
price of the good or service (as described in paragraph 61) arises for
reasons other than the provision of finance to either the customer or the
entity, and the difference between those amounts is proportional to the
reason for the difference. For example, the payment terms might
provide the entity or the customer with protection from the other party
failing to adequately complete some or all of its obligations under the
contract