Under IFRS 15, when the scope or price of a contract changes, how should the modification be accounted for?

• A. It is treated as a separate contract if the added goods or services are distinct and the price reflects stand-alone selling prices.
• B. Modify the existing contract and adjust the transaction price.
• C. Derecognize the original contract and create a new one.
• D. Revenue is recognized only when delivered.

Answer: (A)

When a contract modification occurs under IFRS 15, you first check if the added goods or services are distinct and whether the price reflects their stand-alone selling prices. If both conditions are met, it is accounted for as a separate contract for the added goods or services. This means you establish a new contract with its own performance obligations and recognize revenue separately from the original contract.

Why this is the best approach: distinctness ensures the new and old goods/services can be treated independently, and pricing at stand-alone selling prices ensures the consideration allocated to the new part is appropriate and not shaped by the original contract’s terms. If either condition isn’t met, you instead modify the existing contract by adjusting the transaction price and allocating it to the existing and any new or modified performance obligations.

Other options don’t fit IFRS 15 as well. Treating it as a modification of the existing contract is correct only when the added goods/services aren’t distinct or the price doesn’t reflect SSP. Derecognizing the original contract and creating a new one isn’t the standard flow for a modification that doesn’t meet the separate-contract criteria. Revenue isn’t simply recognized only upon delivery in this context; under modification accounting you continue to recognize revenue as performance obligations are satisfied, consistent with the updated contract structure.