performance completed to date if the contract is terminated by the customer or
another party for reasons other than the entity’s failure to perform as promised.
Paragraphs B9–B13 provide guidance for assessing the existence and
enforceability of a right to payment and whether an entity’s right to payment
would entitle the entity to be paid for its performance completed to date.
Performance obligations satisfied at a point in time
38 If a performance obligation is not satisfied over time in accordance with
paragraphs 35–37, an entity satisfies the performance obligation at a point in
time. To determine the point in time at which a customer obtains control of a
promised asset and the entity satisfies a performance obligation, the entity shall
consider the requirements for control in paragraphs 31–34. In addition, an
entity shall consider indicators of the transfer of control, which include, but are
not limited to, the following:
(a) The entity has a present right to payment for the asset—if a customer is
presently obliged to pay for an asset, then that may indicate that the
customer has obtained the ability to direct the use of, and obtain
substantially all of the remaining benefits from, the asset in exchange.
(b) The customer has legal title to the asset—legal title may indicate which
party to a contract has the ability to direct the use of, and obtain
substantially all of the remaining benefits from, an asset or to restrict
the access of other entities to those benefits. Therefore, the transfer of
legal title of an asset may indicate that the customer has obtained
control of the asset. If an entity retains legal title solely as protection
against the customer’s failure to pay, those rights of the entity would not
preclude the customer from obtaining control of an asset.
(c) The entity has transferred physical possession of the asset—the
customer’s physical possession of an asset may indicate that the
customer has the ability to direct the use of, and obtain substantially all
of the remaining benefits from, the asset or to restrict the access of other
entities to those benefits. However, physical possession may not coincide
with control of an asset. For example, in some repurchase agreements
and in some consignment arrangements, a customer or consignee may
have physical possession of an asset that the entity controls. Conversely,
in some bill-and-hold arrangements, the entity may have physical
possession of an asset that the customer controls. Paragraphs B64–B76,
B77–B78 and B79–B82 provide guidance on accounting for repurchase
agreements, consignment arrangements and bill-and-hold arrangements,
respectively.
(d) The customer has the significant risks and rewards of ownership of the
asset—the transfer of the significant risks and rewards of ownership of an
asset to the customer may indicate that the customer has obtained the
ability to direct the use of, and obtain substantially all of the remaining
benefits from, the asset. However, when evaluating the risks and
rewards of ownership of a promised asset, an entity shall exclude any
risks that give rise to a separate performance obligation in addition to
the performance obligation to transfer the asset. For example, an entity
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may have transferred control of an asset to a customer but not yet
satisfied an additional performance obligation to provide maintenance
services related to the transferred asset.
(e) The customer has accepted the asset—the customer’s acceptance of an
asset may indicate that it has obtained the ability to direct the use of,
and obtain substantially all of the remaining benefits from, the asset. To
evaluate the effect of a contractual customer acceptance clause on when
control of an asset is transferred, an entity shall consider the guidance in
paragraphs B83–B86.
Measuring progress towards complete satisfaction of a
performance obligation
39 For each performance obligation satisfied over time in accordance with
paragraphs 35–37, an entity shall recognise revenue over time by measuring the
progress towards complete satisfaction of that performance obligation. The
objective when measuring progress is to depict an entity’s performance in
transferring control of goods or services promised to a customer (ie the
satisfaction of an entity’s performance obligation).
40 An entity shall apply a single method of measuring progress for each
performance obligation satisfied over time and the entity shall apply that
method consistently to similar performance obligations and in similar
circumstances. At the end of each reporting period, an entity shall remeasure its
progress towards complete satisfaction of a performance obligation satisfied
over time.
Methods for measuring progress
41 Appropriate methods of measuring progress include output methods and input
methods. Paragraphs B14–B19 provide guidance for using output methods and
input methods to measure an entity’s progress towards complete satisfaction of
a performance obligation. In determining the appropriate method for
measuring progress, an entity shall consider the nature of the good or service
that the entity promised to transfer to the customer.
42 When applying a method for measuring progress, an entity shall exclude from
the measure of progress any goods or services for which the entity does not
transfer control to a customer. Conversely, an entity shall include in the
measure of progress any goods or services for which the entity does transfer
control to a customer when satisfying that performance obligation.
43 As circumstances change over time, an entity shall update its measure of
progress to reflect any changes in the outcome of the performance obligation.
Such changes to an entity’s measure of progress shall be accounted for as a
change in accounting estimate in accordance with IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
Reasonable measures of progress
44 An entity shall recognise revenue for a performance obligation satisfied over
time only if the entity can reasonably measure its progress towards complete
satisfaction of the performance obligation. An entity would not be able to
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reasonably measure its progress towards complete satisfaction of a performance
obligation if it lacks reliable information that would be required to apply an
appropriate method of measuring progress.
45 In some circumstances (for example, in the early stages of a contract), an entity
may not be able to reasonably measure the outcome of a performance
obligation, but the entity expects to recover the costs incurred in satisfying the
performance obligation. In those circumstances, the entity shall recognise
revenue only to the extent of the costs incurred until such time that it can
reasonably measure the outcome of the performance obligation.
Measurement
46 When (or as) a performance obligation is satisfied, an entity shall
recognise as revenue the amount of the transaction price (which excludes
estimates of variable consideration that are constrained in accordance
with paragraphs 56–58) that is allocated to that performance obligation.
Determining the transaction price
47 An entity shall consider the terms of the contract and its customary
business practices to determine the transaction price. The transaction
price is the amount of consideration to which an entity expects to be
entitled in exchange for transferring promised goods or services to a
customer, excluding amounts collected on behalf of third parties (for
example, some sales taxes). The consideration promised in a contract
with a customer may include fixed amounts, variable amounts, or both.
48 The nature, timing and amount of consideration promised by a customer affect
the estimate of the transaction price. When determining the transaction price,
an entity shall consider the effects of all of the following:
(a) variable consideration (see paragraphs 50–55 and 59);
(b) constraining estimates of variable consideration (see paragraphs 56–58);
(c) the existence of a significant financing component in the contract (see
paragraphs 60–65);
(d) non-cash consideration (see paragraphs 66–69); and
(e) consideration payable to a customer (see paragraphs 70–72).
49 For the purpose of determining the transaction price, an entity shall assume
that the goods or services will be transferred to the customer as promised in
accordance with the existing contract and that the contract will not be
cancelled, renewed or modified.
Variable consideration
50 If the consideration promised in a contract includes a variable amount, an entity
shall estimate the amount of consideration to which the entity will be entitled
in exchange for transferring the promised goods or services to a customer.
51 An amount of consideration can vary because of discounts, rebates, refunds,
credits, price concessions, incentives, performance bonuses, penalties or other
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similar items. The promised consideration can also vary if an entity’s
entitlement to the consideration is contingent on the occurrence or
non-occurrence of a future event. For example, an amount of consideration
would be variable if either a product was sold with a right of return or a fixed
amount is promised as a performance bonus on achievement of a specified
milestone.
52 The variability relating to the consideration promised by a customer may be
explicitly stated in the contract. In addition to the terms of the contract, the
promised consideration is variable if either of the following circumstances
exists:
(a) the customer has a valid expectation arising from an entity’s customary
business practices, published policies or specific statements that the
entity will accept an amount of consideration that is less than the price
stated in the contract. That is, it is expected that the entity will offer a
price concession. Depending on the jurisdiction, industry or customer
this offer m