What are the three over-time criteria?
- The customer simultaneously receives and consumes the benefits as the company performs. Routine services such as cleaning, payroll processing or network access meet this test: if another provider took over halfway, it would not need to redo the work already done.
- The company's performance creates or enhances an asset the customer controls as it is created. Building on the customer's land is the classic case.
- The company's performance creates an asset with no alternative use to it, and it has an enforceable right to payment for performance completed to date. A ship built to one customer's specification, which the contract prevents the shipyard from selling elsewhere, with payment due for work done if the customer cancels, meets this test.
Meeting any one is enough. The third test needs both parts: an asset with no alternative use but no right to payment for work done to date means revenue at a point in time.
How is progress measured?
| Method | What it uses | Example |
|---|---|---|
| Output methods | Value transferred to the customer: surveys of work performed, milestones reached, units delivered | Kilometres of road completed |
| Input methods | The company's efforts: costs incurred, labour hours, machine hours | Costs incurred to date as a share of total expected costs |
The method must faithfully depict the transfer of control. Costs that do not reflect progress, such as materials bought but not yet installed or the cost of wasted work, are left out of an input measure. If progress cannot yet be measured reliably but the company expects to recover its costs, it recognises revenue only to the extent of costs incurred until it can.
A worked example: a construction contract
A contractor agrees to build a warehouse on the customer's land for CU 10,000,000, with expected total costs of CU 8,000,000. The customer controls the work in progress, so criterion 2 is met and revenue is recognised over time, measured by costs incurred to date.
| Year | Costs incurred | Cumulative costs | Progress | Revenue | Gross profit |
|---|---|---|---|---|---|
| 1 | 2,000,000 | 2,000,000 | 25% | 2,500,000 | 500,000 |
| 2 | 4,000,000 | 6,000,000 | 75% | 5,000,000 | 1,000,000 |
| 3 | 2,000,000 | 8,000,000 | 100% | 2,500,000 | 500,000 |
Revenue follows the work, so the profit of CU 2,000,000 is spread across the three years. If the contractor's estimate of total costs rose above the price, the expected loss would be recognised at once as an onerous contract provision under IAS 37. The progress sheet in the Revenue allocation calculator (Excel) performs this calculation for up to eight periods.
What signals that control has passed at a point in time?
- The company has a present right to payment for the asset.
- The customer has legal title.
- The company has transferred physical possession, unless it is holding the goods for the customer, as in bill-and-hold, or the goods are with a dealer on consignment; see consignment, bill-and-hold and repurchase agreements.
- The customer has the significant risks and rewards of ownership.
- The customer has accepted the asset.
No single indicator decides the matter. Customer acceptance that is only a formality, because the goods are standard and tested before shipping, does not delay revenue; acceptance of a bespoke item that may fail the customer's tests usually does.
How does this play out by industry?
| Business | Usually | Why |
|---|---|---|
| Construction on the customer's site | Over time | The customer controls the work in progress |
| Residential flats sold off-plan | Depends on local law | Over time only if the developer has an enforceable right to payment for work done |
| Standard goods from stock | Point in time | Control passes on delivery |
| Custom machinery with cancellation payments | Often over time | No alternative use and a right to payment for work done |
| Subscriptions and support | Over time | The customer consumes the service as it is provided |
Where to go next
Over-time revenue depends on the obligations identified in step 2; see identifying performance obligations. For costs that can be capitalised while a contract runs, see contract costs.
Need help applying the standards?
Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.
Questions people ask
When is revenue recognised over time under IFRS 15?
When the customer receives the benefit as the company performs, when the work creates an asset the customer controls, or when it creates an asset with no alternative use and the company has a right to payment for work done.
How is progress measured for over-time revenue?
With an output method, such as milestones or units delivered, or an input method, such as costs incurred as a share of total expected costs.
What indicates control has passed at a point in time?
A present right to payment, legal title, physical possession, the risks and rewards of ownership, and customer acceptance.
What happens if a contract becomes loss-making?
The expected loss is recognised immediately as an onerous contract provision under IAS 37.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.
Related guides
More in IFRS 15
This guide is general information. It is not tax or legal advice for your situation.