Question
On January 1, 2026, a construction firm enters into a
contract to build a bridge for ₹100 Crore. The contract includes a performance bonus of ₹20 Crore if the bridge is completed within 24 months. The firm estimates a 90% probability of early completion and a 10% probability of delay. Pursuant to Ind AS 115, what is the Transaction Price the entity should record, assuming it uses the Most Likely Amount method?Solution
Variable Consideration = ₹20 Crore (performance bonus) Ind AS 115 allows two estimation methods: o Most Likely Amount: The single most likely outcome in a range of possible outcomes (best for "all-or-nothing" bonuses). o Expected Value: Sum of probability-weighted amounts. Since there is a 90% probability of receiving the bonus, the "Most Likely" outcome is that the firm will receive the ₹20 Crore. Thus, the transaction price = Fixed price + Variable price = 100 + 20 = 𝟏𝟐𝟎 𝐂𝐫𝐨𝐫𝐞 Note: Ind AS 115 follows a Five-Step Model · Step 1 - Identify the Contract with the customer · Step 2 - Identify the Performance Obligations (Distinct goods/services · Step 3- Determine the Transaction Price (Include variable consideration). · Step 4 - Allocate the transaction price to performance obligations. · Step 5 - Recognise Revenue (Point in time vs. Over time).
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