Revenue – ifrs 15 handbook

Back-end-loaded costs
IFRS 15.39
In some arrangements, a significant portion of the costs may be incurred at the 
end of the contract. If an entity uses an output method to measure progress, 
then the margin in the period in which the back-end-loaded costs are incurred 
may be lower than in other periods. Depending on the facts and circumstances, 
the margin in a particular period may be negative.
Variability in margins is a potential outcome under the standard whenever 
an entity uses an output measure of progress for an over-time contract. An 
entity carefully considers whether it has determined the appropriate measure 
of progress that depicts its performance in transferring control of goods or 
services promised to the customer.
 
Additional application examples
Example 8 – Training costs expensed as incurred
Company D enters into a contract with Customer E to provide maintenance 
services for E’s manufacturing plant for five years. Before beginning the 
maintenance services, D needs to train its employees on the specifics of 
E’s plant in order to provide the service. The costs incurred by D related to 
this training include the labour hours (salaries and wages) of the employees 
participating in the training sessions. 
D determines that these labour costs relate directly to the contract with E and 
are expected to be recovered. However, D concludes that the costs do not 
meet all of the criteria for capitalisation under the standard. This is because the 
employees are not a resource that is controlled by D and therefore the definition 
of an asset is not met. D therefore recognises the training costs as an expense 
as they are incurred.

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7 Contract costs | 185
7.2 Costs of fulfilling a contract
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