IFRS 15 - Construction of boat

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Giannos
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Joined: 09 May 2022, 09:26

IFRS 15 - Construction of boat

Post by Giannos »

I have a question in relation to revenue from contracts with customers.
A company A concluded a contact with a customer for the construction of a leisure boat. The construction process will take two years.
As per the contract, the customer is obliged to pay to company A the agreed construction price in installments at specified periods of time. The company A is not a shipyard. The shipyards works will be subcontracted to a shipyard of a third party and invoices for the works will be issued to the company A by the shipyard.
Except of the shipyard, the company A will receive invoices from other parties who will engage in the construction process (e.g. purchase of raw materials, carpetry works, etc).
My question is whether the company A is entitled by IFRS 15 to recognize revenue at the end of the first year of construction based on the percentage of the costs occured within this year, over the total cost of construction (input method)

Thank you in advance!
Leo
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Joined: 05 Apr 2020, 22:31

Re: IFRS 15 - Construction of boat

Post by Leo »

It depends on the details in the contract between company A and the client.

Analysis should be made on :
- If it does create an asset with an alternative use to the entity
- include terms and conditions providing to the company an enforceable right to payment for performance completed to date.
Giannos
Posts: 34
Joined: 09 May 2022, 09:26

Re: IFRS 15 - Construction of boat

Post by Giannos »

Thank you Leo!
JRSB
Trusted Expert
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Joined: 01 Mar 2020, 01:10
Location: UK

Re: IFRS 15 - Construction of boat

Post by JRSB »

bizarrely, recent ESMA decision EECS/0122-04 is about revenue when building a boat over 1.5-3 years.....

The issuer recognised revenues from the shipbuilding contracts over time in accordance
with paragraph 35(c) of IFRS 15, concluding that (i) the entity's performance does not create
an asset with an alternative use to the entity and (ii) the entity has an enforceable right to
payment for performance completed to date.


but there's also a question of the customer's termination rights based on your country's law, which is discussed in this case.
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Marek Muc
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Re: IFRS 15 - Construction of boat

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Giannos
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Joined: 09 May 2022, 09:26

Re: IFRS 15 - Construction of boat

Post by Giannos »

Thanks a lot!
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