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XYZ Ltd. enters a contract to build sophisticated machinery for ₹2.5 crore. For each day after 31 March 20X1 that the asset is incomplete, the price reduces by ₹1 lakh; for each day before, the price increases by ₹1 lakh. Additionally, a ₹15 lakh bonus is payable on receipt of a specified third-party rating. The appropriate method to estimate variable consideration under Ind AS 115 is:
ADiscounted expected value for both, since both components have a time dimension
BExpected value for the daily timing component, and most likely amount for the binary rating bonus
CMost likely amount for both components
DExpected value for both the timing component and the rating bonus
Answer & Solution
Correct answer: B. Expected value for the daily timing component, and most likely amount for the binary rating bonus
Para 53 lets the entity choose the method that better predicts the entitlement, and explicitly permits MIXING methods within a single contract. The daily timing has a range of possible outcomes — expected value fits. The rating bonus is binary (₹15 lakh or nil) — most likely amount fits.
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