Over time or at a point in time

Step 5 asks when control of each performance obligation passes to the customer. First test whether it is satisfied over time. It is, if any one of three criteria is met (IFRS 15.35):

• (a) the customer simultaneously receives and consumes the benefits as the entity performs — routine services such as cleaning, payroll processing or a gym membership;
• (b) the entity's performance creates or enhances an asset the customer controls as it is created — building on the customer's land, upgrading the customer's own systems;
• (c) the performance creates an asset with no alternative use to the entity and the entity has an enforceable right to payment for performance completed to date — typically a specialised item made to the customer's design, where the contract (and the law) entitles the seller to cost plus a reasonable margin if the customer cancels.

Both halves of (c) matter. A unique machine with no alternative use still fails (c) if the seller is only paid on delivery or only keeps a deposit that doesn't cover its work so far.

If none of the criteria is met, the obligation is satisfied at a point in time — when the customer obtains control. Indicators include a present right to payment, legal title, physical possession, the significant risks and rewards of ownership, and customer acceptance (IFRS 15.38). Shipping terms often decide the date.

Measuring progress over time. Pick one method that faithfully depicts the transfer and apply it consistently (IFRS 15.39–45): - Output methods — surveys of work performed, milestones reached, units delivered, time elapsed (straight-line for a stand-ready service). - Input methods — costs incurred, labour hours, machine hours. The common cost-to-cost method uses costs incurred to date ÷ total estimated costs. Exclude costs that don't depict progress, such as wasted materials, and be careful with uninstalled materials bought from a third party (IFRS 15.B19).

Progress is re-estimated each period and changes are changes in estimate, accounted for prospectively through a cumulative catch-up: this year's revenue = cumulative revenue to date − revenue already recognised. When revenue to date exceeds amounts billed, the difference is a contract asset; when billings run ahead, a contract liability.