BASF Report 2021 Consoli dated Financial Statements – Notes 221 7 Sales revenue Sales revenue from the sale of precious metals to industrial BASF also applies the practical expedient in IFRS 15.121 of not customers is recognized on delivery and the corresponding reporting information on remaining performance obligations result- Sales revenue from contracts with customers is recognized in the purchase prices are recorded as cost of sales. In the trading of ing from a contract with a maximum expected original term of one amount of the consideration BASF expects to receive in exchange precious metals and their derivatives with traders, where there is year. Furthermore, information on performance obligations is not for the goods or services when the customer obtains control of the usually no physical delivery, revenues are netted against the reported if the resulting revenue is recognized in accordance with goods or services. Control is considered to be transferred when the corresponding costs. IFRS 15.B16. customer can direct the use of the goods or services and can obtain all substantial remaining benefits from them. If a consideration that is contractually agreed upon by a customer includes variable components, BASF estimates the amount of the BASF primarily generates income from the sale of goods. Because consideration. Variable components are recognized as revenue only the customer obtains control of the goods at a specific point in time, to the extent that it is highly probable that previously recognized the corresponding sales revenue is recognized based on a given sales revenue will not have to be cancelled as soon as there is no point in time. Determination of this point in time occurs in the context longer uncertainty about the actual amount of the consideration. of an overall assessment of the circumstances which considers the Primarily rebates and other discounts are recognized as a reduction existence of a present claim to payment, the legal title to the goods, in revenue in accordance with the principle of individual measure- actual physical possession of the goods, the transfer of risks and ment. BASF grants customers rebates if the goods purchased by rewards as well as customer acceptance. The transfer of risks and the customer exceed a contractually defined threshold within the rewards takes into account the underlying terms of delivery period specified. Rebates are usually deducted from amounts (especially Incoterms) and is of particular practical significance. payable by the customer. Taking into account the specific terms of According to these principles, sales revenue from the sale of goods the underlying contract, BASF uses the expected value method or is generally recognized upon delivery. If products are delivered to a the most likely amount to estimate a variable consideration amount. consignment warehouse, BASF normally retains control of the The method is selected based primarily on number of possible goods. Accordingly, sales revenue is not recognized until the results such as the number of volume thresholds with rebates. All customer collects the goods from the consignment warehouse. available information, particularly historical values, is used for making Long-term supply agreements usually contain variable prices, estimates. dependent on the development of raw materials prices and variable volumes. In some contracts, BASF grants the customer the right to return goods within a specific period of time, even if they meet the agreed Services rendered to customers by BASF are invoiced according to specifications (sale with right of return). The actual expected amount work completed and recognized as revenue accordingly. of the consideration BASF is entitled to receive in this case is estimated using the expected value method. Refund liabilities are BASF generates a portion of its sales revenue from license recognized in the amount of considerations paid by the customer for agreements. Sales revenue from license agreements is recognized goods that are expected to be returned. based on a point in time or a period of time depending on whether the licensee is being granted a right to use (revenue recognized at a BASF opts to apply the practical expedient in IFRS 15.63 to not point in time) or a right to access (revenue recognized over time) the adjust the amount of the agreed consideration for the effects of a intellectual property of BASF. Sales revenue from sales and material financing component if, at the beginning of a contract, no usage-based royalties is recognized in accordance with the more than one year is expected to lapse between the transfer of underlying settlement agreements. control of the goods or services and payment by the customer.