6 – Sales Revenue

Sales revenue from contracts with customers is recognized in the amount of the consideration BASF expects to receive in exchange for the goods or services when control of the goods or services is transferred to the customer.

BASF primarily generates income from the sale of goods. It is recognized as sales revenue at the point in time when control of the product is transferred from BASF to the customer; this is generally the case on delivery. If products are delivered to a consignment warehouse, BASF normally retains control. Revenue is recognized when the customer consumes the goods. Long-term supply agreements usually contain variable prices dependent on the development of raw materials prices and variable volumes.

Sales revenue from the sale or licensing of technologies or technical expertise is recognized according to the contractually agreed-upon transfer of the rights and obligations associated with these technologies. Recognition of revenue from granting licenses for technology and intellectual property depends on whether they are based on usage rights or access rights. Revenue from usage-based rights is recognized at the point in time when the license is granted. Revenue from access-based rights is recognized over the term of the contract with the customer. Sales revenue from sales and usage-based licenses is recognized in accordance with the underlying settlement agreements.

Sales revenue from the sale of precious metals to industrial customers is recognized on delivery and the corresponding purchase prices are recorded as cost of sales. In the trading of precious metals and their derivatives with traders, where there is usually no physical delivery, revenues are netted against the associated costs.

Services rendered to customers are invoiced according to work completed and recognized as revenue accordingly.

If the consideration promised in a contract includes variable components, BASF estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods to the customer. Variable components are only recognized as revenue when it is highly unlikely that a reversal of sales revenue will occur.

Expected rebates and other trade discounts are accrued in accordance with the principle of individual measurement to cover probable risks related to the return of goods, future warranty obligations and other claims.

BASF grants customers rebates if the goods purchased by the customer exceed a contractually defined threshold within the period specified. Rebates are usually deducted from the amounts payable by the customer. Depending on the terms of the underlying contract, BASF uses either the expected value or the most likely amount to estimate the variable consideration for expected future rebates. The method that is the best predictor of variable consideration is primarily determined by the number of volume thresholds contained in the contract. All available historical, current and forecast information is taken into account when calculating rebates. Customers generally have a right of return if the supplied goods do not meet the agreed specifications. Furthermore, certain contracts grant the customer the right to return the goods within a defined period of time. BASF uses the expected value method to estimate the goods that will be returned, as this method is the best predictor of the amount of variable consideration to which BASF will be entitled.

BASF applies the practical expedient in IFRS 15, which means that it does not adjust the promised amount of consideration for the effects of a significant financing component if, at contract inception, it is expected that the period between the transfer of the promised goods or services to a customer and payment for these goods or services by the customer will be one year or less.

Pursuant to IFRS 15, no information on remaining performance obligations as of December 31, 2019 that have an expected original term of one year or less was reported.

Sales revenue of €44 million, that was included in contract liabilities as of January 1, 2019, was recognized in 2019.

Sales revenue for the 2019 fiscal year includes €279 million from performance obligations fulfilled in prior periods in connection with sales and usage-based licenses.