Last Updated on 26/03/2021 by 75385885
Performance obligations satisfied over time – IFRS 15 requires that when the performance obligation should be recognised over time, an entity needs to consider three criteria. If any one of them is met, this means that control is transferred to the customer over time, and thus revenue shall likewise be recognised over time. The entity shall assess this at contract inception. The criterion are:
- The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs (Routine or recurring services – e.g. cleaning services),
- The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced (Building an asset on a customer’s site), or
- The entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date (Building a specialised asset that only the customer can use or building an asset to a customer’s specifications).
PREDOMINANT RULE – If a performance obligation is not satisfied over time, then an entity recognises revenue at the point in time at which it transfers control of the good or service to the customer.
Performance obligations satisfied over time Performance obligations satisfied over time Performance obligations satisfied over time.