Revenue – ifrs 15 handbook

alternative use and enforceable right to payment
IFRS 15.IE81–IE90
Developer D is developing a multi-unit residential complex. Customer Y enters 
into a binding sales contract with D for Unit X, which is under construction. Each 
unit has a similar floor plan and is a similar size. The following facts are relevant.
– Y pays a non-refundable deposit on entering into the contract and will 
make progress payments intended to cover costs to date plus the margin 
percentage in the contract during construction of X.
– The contract has substantive terms that preclude D from being able to direct 
X to another customer.
– If Y defaults on its obligations by failing to make the promised progress 
payments when they are due, then D has a right to all of the consideration 
promised in the contract if it completes the construction of the unit. 
– The courts have previously upheld similar rights that entitle developers to 
require the customer to perform, subject to the entity meeting its obligations 
under the contract.
At contract inception, D determines that because it is contractually prevented 
from transferring X to another customer, X does not have an alternative use. In 
addition, if Y were to default on its obligations then D would have an enforceable 
right to all of the consideration promised under the contract. Consequently, 
Criterion 3 is met and D recognises revenue from the construction of Unit X 
over time.
A right to payment may be established by relevant laws and 
regulations
IFRS 15.B11–B12, BC147
When a right to payment on termination is not specified in the contract with 
the customer, an entity may still have a right to payment under relevant laws 
or regulations. 
The fact that the entity may sue a customer that defaults or cancels a 
contract for convenience does not in itself demonstrate that the entity has 
an enforceable right to payment. Generally, a right to payment exists only if 
taking legal action entitles the entity to a payment for the cost incurred plus a 
reasonable profit margin for the performance completed to date.
Factors to consider when determining whether an entity has a right to payment 
include: 
– relevant laws and regulations;
– customary business practices;
– the legal environment; 
– relevant legal precedents; and 
– legal opinions on the enforceability of rights (see below).

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5 Step 5 – Recognise revenue when or as the entity satisfies a performance obligation | 125
5.2 Performance obligations satisfied over time
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Each individual factor may not be determinative on its own. An entity needs to 
determine which factors are relevant for its specific set of circumstances. In 
cases of uncertainty – e.g. when the above factors are inconclusive or provide 
contradictory evidence about the existence of a right to payment – an entity 
considers all relevant factors and applies judgement in reaching its conclusion.