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IFRS 15 - How to account for Cost to Fulfill the Contract when revenue is recognized at a point in time


In IFRS 15, I'm still not clear how should we account for the cost to fulfil if my revenue is recognized at a point in time.

For example:
If I have a contract with one performance obligation to be completed in 2 years (starting at the beginning of 2017 and finishing at the end of 2018).
Let's assume the transaction price is fixed as 100,000 USD.
Based on the criteria given under the standard it was decided that the  revenue should be recognized at a point in time (that means at the end of 2018).
By the end of 2017, I have incurred a cost of 25,000 USD for Acquiring materials, Labour and Direct overhead cost for fulfilling the contract.

My question is how do we account for this 25,000 USD in the financial statements of 2017?
Should we recognized them in P&L (as cost of sales without recognizing any sales amount) ?
Or should we keep them as Construction In Progress in the Balance Sheet (capitalize them until the revenue is recognized by the end of 2018)?

As per my understanding we should report them as expense unless they are qualified for capitalization (as same as in the case of revenue recognized over time).
But, still in back of mind, it says, it is against the matching concept and should we rather keep them as work in progress in the balance sheet until the revenue is recognized.

It would be much appreciated if you could guide me on this.

asked Aug 9 in IFRS 15 - Revenue from Contracts with Customers by Rajith Ekanayake

1 Answer

0 votes
Yes I think you should show 25k in in balance sheet until 2018.
answered Aug 10 by Kapig Level 2 Member (3,350 points)
Thanks for your reply.  I would rather love to keep it in the BS. But, as per my understanding the cost which do not enhance or increase the performance of the prformance obligations satisfied in future should be expensed as and when incurred. Do you have any example or something that is given under the standard to subsyantiate our thinking to keep it in the BS. Thanks.


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