Revenue – ifrs 15 handbook

5.2.2 
The entity has an enforceable right to payment for 
performance completed to date
IFRS 15.37, IU 03-18
An entity that is constructing an asset with no alternative use is effectively 
constructing the asset at the direction of the customer. The contract will often 
contain provisions providing some economic protection against the risk of the 
customer terminating the contract and leaving the entity with an asset of little or 
no value. Therefore, to demonstrate that a customer controls an asset that has 
no alternative use as it is being created, an entity evaluates whether it has an 
enforceable right to payment for the performance completed to date. 
In performing this evaluation, the entity considers whether, throughout the contract, 
it is entitled to compensation for 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.
The likelihood that the customer would terminate the contract or that the entity 
would exercise its right to payment are not relevant in making this assessment.
IFRS 15.B9–B13
To meet this part of Criterion 3, the entity’s right to payment has to be for an amount 
that approximates the selling price of the goods or services transferred – e.g. a right 
to recover costs incurred plus a reasonable profit margin. The amount to which the 
entity is entitled does not need to equal the contract margin, but has to be based on 
either a reasonable proportion of the entity’s expected profit margin or a reasonable 
return on the entity’s cost of capital. However, if an entity would only recover its 
costs, then it would not have the right to payment for performance completed to 
date and this part of Criterion 3 would not be met.

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122 | Revenue – IFRS 15 handbook
In some cases, an entity may enter into a contract with a customer that is expected 
to be loss-making from the outset. This usually happens when an entity pursues a 
specific economic objective – e.g. to enter into a new market, an entity agrees to 
sell a product in that market for a price that is below cost. It appears that a contract 
with a negative margin may still meet Criterion 3 if the amount to which the entity 
is entitled from the customer on termination is reasonable in proportion to the 
expected margin for the contract and the performance completed to date.
Other factors to consider include the following.
Payment terms
– An unconditional right to payment is not required, but 
rather an enforceable right to demand or retain payment 
for the performance completed to date if the contract is 
terminated by the customer for convenience