Revenue – ifrs 15 handbook

Example 14 – Measure of progress for a performance obligation 
involving multiple goods and services
Company U enters into a contract to manufacture and deliver 10 units to 
Customer C for 10,000. U assesses that the contract contains a single 
performance obligation that is satisfied over time. The cost to manufacture and 
deliver the 10 units is estimated to be 8,000. 
U considers whether it could apply the units-of-delivery method to measure 
progress and determines that it would not be appropriate because it would lead 
to material amounts of work in progress being recognised on the balance sheet. 
Instead, U determines that an input method based on costs (cost-to-cost) is an 
appropriate measure of progress.
The alternative effects on the financial statements are shown below. This 
illustration assumes that none of the units has been completed or delivered and 
costs of 3,200 have been incurred (i.e. 40% complete) as at the reporting date. 
Units-of-delivery 
method
Cost-to-cost 
method
Revenue
-
4,000
1
Costs of goods sold
-
3,200
2
Gross margin
-
800
Work in progress
3,200
-
2
Notes
1. Calculated as 10,000 × 40%. 
2. Assuming that all materials have been integrated into the units and have no alternative 
use.
Design and production services – A units-of-delivery method or a 
units-of-production method may not be appropriate 
IFRS 15.BC165–BC166
A units-of-delivery or units-of-production method may not be appropriate if 
the contract provides both design and production services and they represent 
a single performance obligation, because in this case each item produced or 
delivered may not transfer an equal amount of value to the customer. These 
contracts are common, for example, in the aerospace and defence, contract 
manufacturing, engineering and construction industries.
The clarifications provided in the standard on when certain methods for 
measuring progress may not be appropriate emphasise the need for an 
entity to consider its facts and circumstances and select the method that 
depicts its performance and the transfer of control of the goods or services to 
the customer.

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5 Step 5 – Recognise revenue when or as the entity satisfies a performance obligation | 141
5.3 Measuring progress towards complete satisfaction of a performance obligation
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