Arrangements where the identification criteria are not met

An arrangement is not accounted for using the five contract identification criteria until all of the criteria are met. Management will need to reassess the arrangement at each reporting period to determine if the criteria are met. Arrangements where the identification criteria are not met

If the criteria for contract identification are not met, then the contract does not exist for the purpose of applying the general model of the standard, and any consideration received from the customer is generally recognised as a deposit (liability). The liability is recorded as revenue from the customer when one of the following criteria is met (IFRS 15 15):

  1. the entity has no remaining obligations to transfer goods or services to the customer and all, or substantially all, of the consideration promised by the customer has been received by the entity and is non-refundable; or Arrangements where the identification criteria are not met
  2. the contract has been terminated and the consideration received from the customer is non-refundable. [IFRS 15 12]

In addition, a contract does not exist when each party has the unilateral right to terminate a wholly unperformed contract without compensation. If the criteria are not initially met, then an entity continually reassesses the contract against them and applies the requirements of the standard to the contract from the date on which the criteria are met (IFRS 15 14). Any consideration received for a contract that does not meet the criteria is accounted for under the requirements above from IFRS 15 15.


In an agreement to sell real estate, Seller X assesses the existence of a contract. In making this assessment, X considers factors such as:

  • the buyer’s available financial resources;
  • the buyer’s commitment to the contract, which may be determined based on
  • the importance of the property to the buyer’s operations;
  • X’s prior experience with similar contracts and buyers under similar circumstances;
  • X’s intention to enforce its contractual rights;
  • the payment terms of the arrangement; and
  • whether X’s receivable is subject to future subordination.

If X concludes that it is not probable that it will collect the amount to which it expects to be entitled, then a contract to transfer control of the real estate does not exist. Instead, X applies the guidance on consideration received before concluding that a contract exists, and initially accounts for any cash collected as a deposit (liability).


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