IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here. Output method – Measuring progress to completion
This section is part of step 5 Recognise revenue as or when each performance obligation is satisfied and the sub-step Measuring progress toward complete satisfaction of a performance obligation. Output methods result in revenue being recognised based on direct measurement of the value of goods or services transferred to date in comparison with the remaining goods or services to be provided under the contract. When evaluating whether to apply an output method, consideration is given to whether the output selected would reflect the vendor’s performance toward complete satisfaction of its performance obligation(s). An output method would not reflect the vendor’s performance if the output selected fails to measure a material amount of goods or services (for example, work in progress or finished goods) which are controlled by the customer. Output method – Measuring progress to completion
As a practical expedient, if the amount of a vendor’s right to consideration from a customer corresponds directly with the value to the customer of the vendor’s performance completed to date (e.g. a service contract in which a vendor bills a fixed amount for each hour of service provided), the vendor recognises revenue at the amount to which the vendor has the right to invoice.
When the information that is required to apply an output method is not observable, or is not available without undue cost, it may be necessary to use an input measurement method.
Output method – Measuring progress to completion