Revenue – ifrs 15 handbook

Determining
whether…
Consider 
contractual 
restrictions?
Consider 
practical 
limitations?
Consider 
possible 
termination?
Another entity would 
not need to substantially 
reperform (Criterion 1)
No
No
Yes
The entity’s performance 
does not create an asset 
with an alternative use 
(Criterion 3)
Yes
Yes
No

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5 Step 5 – Recognise revenue when or as the entity satisfies a performance obligation | 117
5.2 Performance obligations satisfied over time
| 
Example 1 – Assessing whether another entity would need to 
reperform the work completed
IFRS 15.BC126
Company M enters into a contract to transport equipment from Los Angeles 
to New York City. If M delivers the equipment to Denver – i.e. only part of the 
way – then another entity could transport the equipment the remainder of the 
way to New York City without reperforming M’s performance to date. The other 
entity would not need to take the goods back to Los Angeles to deliver them 
to New York City. Criterion 1 is met and transportation of the equipment is a 
performance obligation that is satisfied over time.
Differences in assumptions used when applying Criteria 1 and 3
IFRS 15.BC139
The consideration of contractual restrictions and practical limitations differs 
for the assessment of Criteria 1 and 3 because they are designed to apply to 
different scenarios.
Criterion 1 involves a hypothetical assessment of what another entity would 
need to do if it took over the remaining performance obligation. Contractual 
restrictions or practical limitations, which would otherwise prevent the entity 
from transferring the performance obligation to another entity, are not relevant 
when assessing whether the entity has transferred control of the goods or 
services provided to date.
By contrast, Criterion 3 focuses on the entity’s ability to direct the completed 
asset for an alternative use, assuming that the contract is fulfilled. This ability 
is directly affected by the existence of contractual restrictions and practical 
limitations.
However, the entity’s rights on contract termination are considered when 
evaluating whether the entity has a right to payment under Criterion 3.