Revenue – ifrs 15 handbook

partially satisfied the performance obligation, it recognises revenue to reflect 
that performance. 
For example, if a developer sells an apartment to a customer when the 
apartment is 20 percent complete and the contract meets the criteria to 
recognise revenue over time, then the developer recognises 20 percent of its 
revenue under the contract on the date on which the contract is signed. 
Additionally, fulfilment costs incurred before the existence of the contract that 
are not in the scope of another standard (e.g. inventory) would be capitalised 
as costs to fulfil an anticipated contract when the capitalisation criteria are met 
(see 
Chapter 7
). These costs are expensed immediately at the date on which 
the Step 1 criteria are met if they relate to progress made to date on goods or 
services already deemed to have transferred to the customer at that date.

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5 Step 5 – Recognise revenue when or as the entity satisfies a performance obligation | 137
5.3 Measuring progress towards complete satisfaction of a performance obligation
| 
Borrowing costs when revenue is recognised over time
IU 03-19
An entity may borrow funds to fulfil its contracts with customers. A question 
arises over whether directly attributable borrowing costs may be capitalised 
under the borrowing costs standard when control transfers to the customer 
over time – in particular, whether an entity may have a qualifying asset in these 
circumstances. 
The IFRS Interpretations Committee discussed a scenario in which an entity 
incurs borrowing costs in relation to construction of a multi-unit real estate 
development. Units are marketed and sold to individual customers and control 
of each unit transfers to the customer over time. Some units are sold before 
construction commences and some during construction – i.e. the entity 
recognises work in progress for unsold units as inventory. The Committee noted 
that any work in progress for unsold units under construction is ready for its 
intended sale and therefore not a qualifying asset. This is because the entity 
intends to sell the part-constructed units as soon as it finds suitable customers 
and control of them will transfer to the customers on entering into a contract. 
For example, in April 2019 Developer D undertakes a project to develop a multi-
unit residential building. The construction is expected to take three years – i.e. a 
substantial period of time. D borrows funds to finance the development. Under 
applicable laws, the land on which the building is being constructed is and will 
continue to be owned by the government.
D starts marketing the units and commences the construction of the building. 
Successful marketing efforts result in entering into sales contracts with 
customers straight away.
D determines that revenue from the sale of individual units will be recognised 
over time. As a result, D does not expect to have material inventory or work in 
progress on its balance sheet for units sold because control over a specific unit 
under construction will, from the point of entering into a sales agreement, be 
continuously transferred to each individual customer.
At 31 December 2019, D has completed 10% of the construction work and sold 
50% of the units in the building for a total consideration of 100,000. The actual 
costs incurred on the construction are 16,000. As a result, D recognises:
– revenue in profit or loss for the units sold of 10,000 (100,000 
×
10%); 
– construction costs in profit or loss for the units sold of 8,000 (16,000 
×
50%); and
– inventory in the statement of financial position for the cost of the unsold 
units of 8,000 (16,000 
×
50%).

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138 | Revenue – IFRS 15 handbook
D assesses whether the units under construction meet the definition of a 
qualifying asset under the borrowing costs standard. 
– 
Sold units: 
D determines that the units sold do not meet the definition 
of qualifying assets, because any work in progress related to them is 
continuously sold in its existing condition to the customers and therefore 
recognised in profit or loss as costs are incurred. 
– 
Unsold units: 
D determines that the unsold units also do not meet the 
definition of qualifying assets. This is because the inventory is currently 
being marketed, marketing efforts are intended to result in immediate sales 
contracts and each unit will be subject to immediate derecognition once 
there is a signed contract with a customer – i.e. the units are ready for their 
intended sale in their existing condition.