IFRS 15 over time revenue recognition robots prodution

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SrdjanMilanovic
Posts: 3
Joined: 17 Nov 2022, 19:28

IFRS 15 over time revenue recognition robots prodution

Post by SrdjanMilanovic »

Hi IFRS community mates,

Hope you can help me regarding one task related to overtime recognition in accordance to IFRS 15.
Company produces robots for their customers according to contracts. Currently company is recognizing revenue after production and testing of robots are finalized. Testing is provided in artificial conditions in company, which are set in accordance to the customers directions. Period from starting production to finisihing testing is from 2 to 7 months, depending on complexity. Final approval that robots are OK and can be sent to the customer give customers' specialists together with company's engineer.
According to IFRS 15, paragraph 35, point c: "An entity transfers control of a good or service over time and, therefore satisfies a performance obligation and recognizes revenue over time, if the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforcable right to payment for performance completed to date."
Considering that each products, robots, are unique (can not be used for any other use except for customer puropse), and that entity has enforcable right to payment for completed performance (note: company gets 100% advance payment at the start of the contracts from customers), they can recognize revenue over time,
Is there any possible obstacle that could prevent over time revenue recognition in this case?
Further, if company recognizes revenue over time is the cost-to cost approach the best solution or you have some suggestion of alternative way for recognizing revenue over time in this case?
In your opinion, does company need some sort of approval from customer to recognize revenue (for example written document that one phase is finished, maybe something like in case of construction buildings), or internal overtime revenue recognition methodology would be only needed?

Looking forward hearing/reading from you.

Kind regards,
Srđan
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Marek Muc
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Joined: 15 Oct 2018, 17:21
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Re: IFRS 15 over time revenue recognition robots prodution

Post by Marek Muc »

well it seams that they not only can, but should recognise revenue over time:
https://ifrscommunity.com/knowledge-bas ... to-payment

Customer approval of each stage isn't required by IFRS 15.

Input methods are OK, although output methods are preferred:

https://ifrscommunity.com/knowledge-bas ... ut-methods

Do you see any reasonable output method in case of producing robots?
SrdjanMilanovic
Posts: 3
Joined: 17 Nov 2022, 19:28

Re: IFRS 15 over time revenue recognition robots prodution

Post by SrdjanMilanovic »

Hi Marek,

Thank you for reply and sorry for too late reply, I would say.
Well for reasonable output method, I think possible solution is setting output milestones and follow performances towards this milestones.

Thx once more.

Srđan
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