Revenue – ifrs 15 handbook

Example 3 – Applying the guidance on alternative use: Automotive 
supplier
Automotive Supplier S enters into a contract with Carmaker W to build 100 
steering wheels. 
S builds steering wheels for various carmakers. However, the design of some of 
the components of W’s steering wheel is W’s IP. Therefore, S is not allowed to 
sell completed steering wheels to other carmakers. W enforces this contractual 
restriction by performing periodic inspections in S’s warehouses. In addition, S 
would incur significant costs to rework the design of the steering wheel in its 
completed state if it replaced W’s unique components with other carmakers’ 
components. 
On contract inception, S assesses whether each completed steering wheel will 
have an alternative use. S concludes that there are significant contractual and 
practical restrictions that limit its ability to direct the completed steering wheels to 
another carmaker. Therefore, S concludes that the steering wheels manufactured 
for W have no alternative use.
Many factors to consider when evaluating alternative use
IFRS 15.BC136–BC139
Under the standard, an asset may not have an alternative use due to contractual 
restrictions. For example, units constructed for a multi-unit residential complex 
may be standardised; however, an entity’s contract with a customer may 
preclude it from transferring a specific unit to another customer.
Protective rights – e.g. a customer having legal title to the goods in a contract – 
may not limit the entity’s practical ability to physically substitute or redirect an 
asset, and therefore on their own are not sufficient to establish that an asset 
has no alternative use to the entity.

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120 | Revenue – IFRS 15 handbook
In the absence of a contractual restriction, an entity considers:
– the characteristics of the asset that will ultimately be transferred to the 
customer; and 
– whether the asset, in its completed form, could be redirected without a 
significant cost of rework.
The focus is not on whether the asset can be redirected to another customer or 
for another purpose during a portion of the production process – e.g. up until the 
point at which significant customisation begins to occur. For example, in some 
manufacturing contracts the basic design of an asset may be the same across 
many contracts, but the customisation of the finished good may be substantial. 
Consequently, redirecting the asset in its completed state to another customer 
would require significant rework.