The statement that is reasonable is: "L.A.M. Inc. are entitled to a performance bonus of up to MU100,000 if performance targets are met. The expected value is MU70,000. After considering all the facts and circumstances, it is determined that MU60,000 is the amount that is highly probable that will not reverse once the uncertainty is resolved. Therefore, MU60,000 is included in the transaction price at the inception of the contract."
Under IFRS 15, entities need to consider the variable consideration constraint when recognizing revenue. This means that they should include in the transaction price only the amount of variable consideration that is highly probable not to reverse once the uncertainty is resolved.
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Beacon Ltd.'s situation involves a significant degree of uncertainty due to the contingency on the outcome of a legal case, which typically carries inherent risks and uncertainties. Thus, Beacon Ltd. should apply the constraint on the variable consideration.
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Prescriptions for You Ltd.'s case also seems to imply that the uncertainty related to regulatory approval is outside of the company's control. As such, it is likely that the variable consideration should be constrained to some extent.
In contrast, L.A.M. Inc.'s scenario demonstrates a proper application of the variable consideration constraint. By determining the expected value of the performance bonus and including in the transaction price only the amount that is highly probable not to reverse, L.A.M. Inc. is adhering to the principles outlined in IFRS 15.
