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Hello Team,
“Percentage of completion” is a term and method referred to under IAS 11 and IAS 18. It is important to note that the guidance in IAS 11 and 18 will be superseded by IFRS 15. However, IFRS 15 contains guidance consistent with the underlying concept and methods supporting the percentage of completion method, as referred to in existing IFRSs. Under IFRS 15, performance obligations are first assessed against three specific criteria to determine whether recognition of revenue over time is appropriate (as discussed in question 11). If any one of these criteria is met, then a measure of progress toward satisfaction of the performance obligation must be determined. In determining this measure, IFRS 15 requires determination of a single method of measuring progress for each performance obligation and consistent application for similar performance obligations in similar circumstances. IFRS 15 provides some suggested methods (as noted below) based on either an output or input method. When selecting an appropriate method, it is necessary to ensure it faithfully depicts the entity’s performance. As noted below, the various input and output methods are consistent with those methods referred to under the percentage of completion method in IAS 11 and IAS 18. Based on how IFRS 15 applies, in this context, some companies may have to re-evaluate the method they use to measure progress. For instance, the Basis for Conclusions indicates that certain methods, such as the units-of-delivery or units-of-production methods may not always result in the best depiction of an entity’s performance if the performance obligation is satisfied over time. This is because a units-of-delivery or a units-of-production method ignores the work in progress that belongs to the customer. When that work in progress is material to either the contract or the financial statements as a whole, using a units-of-delivery or a units-of-production method would distort an entity’s performance because it would not recognize revenue for the assets that are created before delivery or before production is complete but are controlled by the customer.
Regards,
Saiyid
