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An entity agrees to deliver a good for ₹1,00,000; if delivery exceeds 30 days, a penalty reduces the receivable to ₹95,000. Under Ind AS 115, the transaction price is:
A₹1,00,000 with the ₹5,000 penalty treated as a separate selling expense if incurred
B₹1,00,000 always — penalties cannot reduce revenue under Ind AS 115
CVariable consideration — estimated using expected value or most likely amount, with the constraint applied
D₹95,000 — the worst-case net of penalty, fixed
Answer & Solution
Correct answer: C. Variable consideration — estimated using expected value or most likely amount, with the constraint applied
Where the penalty is INHERENT in determining the transaction price (it reduces the amount the entity will be entitled to), it is part of variable consideration. The entity estimates the consideration at expected value or most likely amount and applies the constraint (paras 56-58). It is not a fixed worst-case default, not a separate expense, and not ignored.
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