Uninstalled materials

Large equipment such as boilers, turbines, lifts and switchgear often arrives on site months before it is fitted, and can be a big share of a contract's costs. Counting it as progress would recognise margin before the contractor has done the work. This guide sets out IFRS 15's four conditions, works through a hospital contract with a boiler on site, and covers materials in stores and items the contractor makes itself.

By Awais Jameel, Chartered Accountant. Reviewed by Muhammad Bilal, Chartered Accountant. 3 minute read.

Short answer

Uninstalled materials are items delivered to a construction site, or otherwise controlled by the client, before the contractor installs them. Under IFRS 15, if an item is not distinct, the client controls it before installation, its cost is significant to the contract and the contractor did not design or make it, the contractor recognises revenue equal to its cost, with no margin, and excludes it from the cost-to-cost measure of progress. Its margin is earned as the rest of the work is done. In this guide's example, a 3 million boiler delivered before installation reduces year-end profit from 1.5 million to 0.75 million.

At a glance

Rule
Revenue at cost, no margin
Condition 1
Item is not distinct
Condition 2
Client controls it before installation
Condition 3
Cost is significant
Condition 4
Contractor did not design or make it
Still in stores
Contractor's inventory, not progress
Uninstalled materialsRule: Revenue at cost, no margin; Condition 1: Item is not distinct; Condition 2: Client controls it before installation; Condition 3: Cost is significant; Condition 4: Contractor did not design or make it; Still in stores: Contractor's inventory, not progress.KEY FACTS AT A GLANCEUninstalled materialsRuleRevenue at cost, nomarginCondition 1Item is not distinctCondition 2Client controls it beforeinstallationCondition 3Cost is significantCondition 4Contractor did not designor make itStill in storesContractor's inventory,not progressTax BakersUninstalled materialsRule: Revenue at cost, no margin; Condition 1: Item is not distinct; Condition 2: Client controls it before installation; Condition 3: Cost is significant; Condition 4: Contractor did not design or make it; Still in stores: Contractor's inventory, not progress.KEY FACTS AT A GLANCEUninstalled materialsRuleRevenue at cost, no marginCondition 1Item is not distinctCondition 2Client controls it before installationCondition 3Cost is significantCondition 4Contractor did not design or make itStill in storesContractor's inventory, not progressTax Bakers
Key facts at a glance, as set out in this guide.

When are uninstalled materials recognised at cost?

Recognise the uninstalled item at cost?Recognise the uninstalled item at cost?Is the item distinct, aseparate obligation?YesSeparate obligation:normal marginNoDoes the client control itbefore installation?NoContractor'sinventoryYesIs its cost significant anddid the contractor not make it?NoCount as normalprogressYesRevenue at cost, excluded from progress
All conditions must be met for the zero-margin rule.

All four conditions must be met. The rule applies most often to specialised equipment bought from a manufacturer and installed by the contractor, such as boilers, chillers, lifts and turbines.

Uninstalled materials: a hospital boiler

A contractor is building a hospital extension for CU 12 million, with total expected costs of 9 million, including a boiler from a specialist manufacturer costing 3 million. At the year end, costs incurred are 4.5 million, including the boiler, which has been delivered to site and is now the client's, but not yet installed.

CU millionBoiler counted as progressBoiler at cost under IFRS 15
Progress4.5 / 9 = 50%(4.5 - 3) / (9 - 3) = 25%
Revenue6.0025% x 9 + 3 = 5.25
Costs4.54.5
Profit1.500.75

Counting the boiler would show the project half finished and recognise half the margin, when only a quarter of the building work is done. Under IFRS 15, the boiler earns revenue equal to its cost now, and the contract's margin builds up as the contractor does the work, including installing the boiler.

What about materials still in the contractor's stores?

Materials the contractor has bought but still controls, such as steel in its yard or bulk stock for several projects, are inventory. They do not count towards progress and earn no revenue until they are used on site or control passes to the client. Materials delivered to site but not yet controlled by the client, for example where title passes only on installation, are also not counted.

What if the contractor makes the item itself?

If the contractor designs or manufactures the item, or is significantly involved in doing so, its costs reflect the contractor's own performance, so they count towards progress with a margin as normal. A contractor that fabricates its own steelwork recognises progress as it fabricates, not only when it erects the steel.

What if the equipment is distinct?

If the equipment is a separate performance obligation, for example a standard machine sold and delivered alongside an unrelated installation service, revenue for it is recognised when control passes, at its allocated price including margin. In most construction contracts, equipment is integrated into the asset and not distinct.

What judgements does the rule need?

Three need care. Whether the client controls the item before installation depends on title, risk, physical possession and whether the client has paid for or accepted it; delivery to a site the client owns is a strong indicator but not conclusive. Whether its cost is significant is judged against the contract's total expected costs, and contractors often set a threshold in their policies. Whether the contractor was significantly involved in designing or making the item depends on its role, not just on who placed the purchase order. Contractors should apply the same answers to similar equipment across contracts and explain the policy where the effect is material.

Does the same issue arise under output methods?

Less often. A survey of work performed values installed work, so uninstalled items do not inflate it, but contractors still need a consistent policy for valuing materials on site in interim certificates. See the cost-to-cost method, construction revenue over time and construction accounting.

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Questions people ask

How are uninstalled materials treated under IFRS 15?

If the item is not distinct, the client controls it before installation, its cost is significant and the contractor did not make it, revenue equal to its cost is recognised and it is excluded from the measure of progress.

Do materials in the contractor's stores count towards progress?

No. They are the contractor's inventory until used on site or controlled by the client.

What if the contractor manufactures the equipment itself?

Its costs reflect the contractor's own work, so they count towards progress with a normal margin.

When is the margin on uninstalled equipment earned?

As the rest of the contract work, including installation, is performed.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 15 Revenue from Contracts with Customers

Rules and fees change. If you are reading this long after October 7, 2026, confirm the figures with the source before you rely on them.

ConstructionThe cost-to-cost method of measuring progressConstructionConstruction revenue over timeConstructionConstruction accounting: the key IFRS issues

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