Contract modifications: when a new order changes the remaining revenue
A customer orders 100 identical units at £100 each. After 60 have transferred, the customer adds another 40 for £3,200. Finance now has 80 units left to deliver, some priced at £100 and others at £80. Under UK-adopted IFRS 15, an approved change can leave those prices separate or combine the remaining revenue into £90 a unit. The answer depends on whether the added goods are distinct and whether their price reflects an appropriately adjusted stand-alone selling price. The figures are hypothetical.
Establish what was approved
IFRS 15 paragraphs 18 and 19 define a contract modification as an approved change in scope, price or both that creates new enforceable rights and obligations or changes existing ones. Approval can be written, oral or implied by customary business practice. Until the parties approve a modification, the entity continues accounting for the existing contract.
A signed change form is useful evidence, but the accounting test is not simply whether the form exists. Scope can also be approved before the corresponding price is settled. In that case, estimate the price change using the variable-consideration requirements and their constraint. An unresolved price does not automatically mean there is no modification.
This article concerns qualifying customer contracts under UK-adopted full IFRS. It does not decide a procurement approval, VAT treatment or the accounting under FRS 102.
Sources and context, checked :
Separate contract or remaining contract?
Paragraph 20 treats an addition as a separate contract when it increases scope through distinct goods or services and the added consideration reflects their stand-alone selling prices, adjusted appropriately for the particular contract. A discount can meet that condition. A price below the published list is not enough to reject separate-contract accounting.
Distinct has two parts. The customer must be able to benefit from the good or service on its own or with readily available resources, and the promise must be separately identifiable from the other promises in the contract. Paragraphs 27 to 30 require both. Inputs that the seller combines into one integrated output may fail the second part.
Where the change is not a separate contract, paragraph 21 asks about what remains. If the remaining goods or services are distinct from those already transferred, account prospectively for the remaining consideration. If they form part of a single, partially satisfied obligation and are not distinct, update cumulative revenue immediately. A mixed change can require both approaches.
The remaining 80 units
Assume the example units are distinct, £6,000 of revenue has properly been recognised for the first 60, and the £80 added price does not reflect an appropriate adjusted stand-alone selling price on these facts. There are no taxes, financing, returns, other price variability or allocation exceptions.
The unrecognised £4,000 from the original order joins the £3,200 addition. The £7,200 total belongs to the 80 units still to transfer, giving £90 of revenue per unit. The first £6,000 stays unchanged. Reducing those earlier units to £90 would incorrectly reopen revenue already recognised.
For contrast, if the additional 40 units instead cost £4,000 and that price meets paragraph 20, the addition is a separate contract. The original 40 remaining units retain their £4,000 revenue and the new 40 carry another £4,000.
| Prospective calculation | Amount |
|---|---|
| Original consideration not yet recognised | £4,000 |
| Approved added consideration | £3,200 |
| Consideration for 80 remaining units | £7,200 |
| Revenue per remaining unit | £90 |
| Total contract revenue after all units transfer | £13,200 |
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When an immediate catch-up is needed
Consider a separate hypothetical integrated project that already qualifies for over-time revenue. Its approved cost-to-cost measure faithfully depicts progress. Before an inseparable change, the price is £100,000, estimated total cost £80,000 and cost incurred £40,000. Progress is 50% and cumulative revenue £50,000.
The approved modification adds £30,000 to price and £20,000 to estimated total cost, with no further cost incurred at that moment. Revised progress is £40,000 divided by £100,000, or 40%. Applied to the £130,000 price, cumulative revenue becomes £52,000. The immediate catch-up is £2,000. Keeping the old 50% progress would overstate the result.
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Keep the decision with the change record
For the next amendment, retain the original promises, approval evidence and date, remaining deliverables, stand-alone price evidence and revised estimates. Write why the conclusion is separate, prospective, cumulative or mixed, then reconcile revenue before and after the change. An invoice can support the amounts, but it cannot settle distinctness or replace evidence of enforceable approval.