Financial Reporting · Revenue

Recognising Revenue Over Time or at a Point in Time

Updated 11 October 2026 · Fact-checked

Under IFRS 15, you recognise revenue when a performance obligation is satisfied. If any of three over-time criteria is met, recognise revenue as progress is made, using an input or output method. If none is met, recognise revenue at the point in time control passes to the customer.

Understand Recognising Revenue Over Time or at a Point in Time

IFRS 15 says revenue is recognised when (or as) the entity satisfies a performance obligation by transferring a promised good or service to the customer. The test is control, not risk or legal title alone. A customer has control when it can direct the use of the asset and obtain substantially all its remaining benefits.

First ask: is the obligation satisfied over time? It is if any one of three criteria is met:

The customer receives and consumes the benefits as you perform (for example, a cleaning service).
Your performance creates or enhances an asset the customer controls as it is created (for example, building on the customer's land).
Your performance creates an asset with no alternative use to you, and you have an enforceable right to payment for work done to date.

If none of these applies, the obligation is satisfied at a point in time. You then recognise revenue when control passes. Indicators include: you have a present right to payment, the customer has legal title, physical possession, the significant risks and rewards, and has accepted the asset. These are indicators, not a checklist. No single one is decisive.

For over-time obligations you must measure progress towards complete satisfaction. There are two methods. The output method uses direct measures of value transferred, such as surveys of work done, units delivered or milestones reached. The input method uses your effort, such as costs incurred or labour hours, relative to total expected inputs. Use the method that best shows the transfer of control, and apply it consistently. If you cannot reasonably measure the outcome but you expect to recover the costs incurred, recognise revenue only to the extent of costs incurred (zero margin).

Progress is an estimate. When estimates change, you adjust revenue on a cumulative catch-up basis in the current period. If total expected costs exceed total revenue, the contract is onerous and the whole expected loss is recognised immediately under IAS 37.

Key rules to remember

Over-time criteria: Over time if ANY of: (1) customer simultaneously receives and consumes benefits; (2) customer controls the asset as it is created or enhanced; (3) asset has no alternative use AND enforceable right to payment for work to date; If none is met, revenue is recognised at a point in time when control passes.
Input method (cost-to-cost): Progress % = Costs incurred to date ÷ Total expected costs; Use only costs that reflect performance. Exclude costs such as materials delivered but not yet used.
Output method: Progress % = Value of work certified (or units delivered) ÷ Total contract value (or total units); Direct measure of value transferred to the customer.
Cumulative revenue to date: Cumulative revenue = Transaction price × Progress %; Revenue for the year = cumulative revenue to date − revenue recognised in earlier years.
Cumulative profit and cost of sales: Cost of sales for the year = Cumulative costs recognised − costs recognised in earlier years; Profit = Revenue − Cost of sales; Under the input method, cost of sales equals costs incurred in the year.
Statement of financial position balance: Contract asset = Revenue recognised for which the right to payment is still conditional on something other than the passage of time; Receivable = amount where the right to payment is unconditional; Contract liability = consideration received or billed in advance of performance; Simplified assumption used in the Bina example: every amount invoiced is an unconditional right to payment, so it is a receivable. The contract asset is then cumulative revenue − cumulative amounts invoiced (if positive). If invoices exceed cumulative revenue, the excess is a contract liability.
Expected loss: If total expected costs > transaction price, recognise the full expected loss immediately; Treat the loss as a provision under IAS 37 to the extent not already reflected in the progress-based figures.

How to solve Recognising Revenue Over Time or at a Point in Time questions

Use this order for any question on timing of revenue recognition.

1Identify each performance obligation in the contract. Split it if goods or services are distinct.
2Test the three over-time criteria in order. If any one is met, the obligation is over time.
3If none is met, find the date control passes using the indicators. Recognise all revenue on that date.
4For over time, choose the progress method the question gives or implies: costs for input, certified work or units for output.
5Calculate progress %, then cumulative revenue = price × progress %. Deduct revenue from prior years.
6Calculate cost of sales for the year and the profit. Check whether total expected costs exceed the price, which makes it a loss-making contract.
7Work out the statement of financial position: cumulative revenue less cumulative billings gives a contract asset or liability. Show receivables separately for unconditional amounts.
8State the entries and explain briefly, using the word control.

Quickest way: Three-test shortcut for long-term contracts

When to use it: Use in Section A and OT case questions, and as a plan for Section C when time is short.

Ask: does the customer get the benefit as I work, or does it own the asset as it is built, or can I not reuse it and I am paid for work done? One yes means over time.
If all three are no, revenue is a single amount on delivery or acceptance when control passes.
For the percentage, divide the right figure: costs to date over total expected costs for input, or certified value over price for output.
Multiply by the price, then subtract last year's cumulative revenue.
Check for a loss: if total costs exceed price, book the whole loss now.
Compare cumulative revenue with cumulative invoices to label the balance a contract asset or liability.

Common mistakes in Recognising Revenue Over Time or at a Point in Time

Treating revenue as recognised on delivery for every sale, or on invoicing or cash receipt.
Older ideas of risks and rewards, or simply following the invoice date.
Fix: Always test control and the three over-time criteria first. Invoice and cash dates only affect receivables or contract balances, not the timing of revenue.
Requiring all three over-time criteria to be met.
The criteria are listed together, so students assume they must all apply.
Fix: Only one needs to be met. Criterion three has two parts that must both hold: no alternative use and an enforceable right to payment.
Using cumulative revenue as the revenue for the year.
Students forget the contract spans several periods.
Fix: Subtract revenue recognised in prior periods. Write cumulative first, then the year's figure.
Including costs that do not reflect progress in the input percentage, such as materials bought but not yet installed.
Students take total costs incurred without reading the scenario.
Fix: Check the wording. Exclude costs not reflecting transfer of control to the customer, and treat unused materials as inventory.
Ignoring a loss on the contract until it actually happens.
Students apply the percentage to a loss and spread it across years.
Fix: If total expected costs exceed the price, recognise the full expected loss immediately.
Showing amounts billed as revenue, or netting contract assets against receivables.
Confusing billing with performance.
Fix: Revenue follows performance. Compare cumulative revenue with cumulative billings to find the contract asset or liability.

Worked examples

Example 1

Bina Builders signs a fixed-price contract for ₹5,00,000 to build a warehouse on the customer's land. Total expected costs are ₹3,20,000. Year 1: costs incurred ₹1,28,000; invoiced ₹1,50,000. Year 2: costs incurred to date ₹2,56,000 (cumulative); invoiced to date ₹3,50,000. Progress is measured by the cost-to-cost method. Calculate revenue, cost of sales and profit for each year and the statement of financial position balance at the end of each year, assuming all invoices are unpaid.

Show the solution

The warehouse is built on the customer's land, so the customer controls the asset as it is created. This is over time, using the input method.
Year 1 progress = 1,28,000 ÷ 3,20,000 = 40%.
Year 1 revenue = 40% × 5,00,000 = ₹2,00,000. Cost of sales = ₹1,28,000. Profit = ₹72,000.
Year 1 balance: cumulative revenue ₹2,00,000 less invoiced ₹1,50,000 = contract asset ₹50,000. Receivables are ₹1,50,000.
Year 2 progress = 2,56,000 ÷ 3,20,000 = 80%.
Cumulative revenue = 80% × 5,00,000 = ₹4,00,000. Year 2 revenue = 4,00,000 − 2,00,000 = ₹2,00,000.
Year 2 cost of sales = 2,56,000 − 1,28,000 = ₹1,28,000. Profit = ₹72,000.
Year 2 balance: cumulative revenue ₹4,00,000 less invoiced ₹3,50,000 = contract asset ₹50,000. Receivables are ₹3,50,000.

Answer: Year 1: revenue ₹2,00,000, cost of sales ₹1,28,000, profit ₹72,000, contract asset ₹50,000. Year 2: revenue ₹2,00,000, cost of sales ₹1,28,000, profit ₹72,000, contract asset ₹50,000.

Example 2

Karan Ltd sells bespoke machinery to a customer for ₹9,00,000. The machine is built to the customer's specification at Karan's factory and has no alternative use to Karan. The contract does not give Karan a right to payment until the machine is delivered and accepted. Delivery and acceptance occur on 20 March, the year-end is 31 March, and the machine cost ₹6,00,000 to make. Explain when revenue is recognised and state the profit for the year.

Show the solution

Test criterion 1: the customer does not consume benefits as Karan performs. Not met.
Test criterion 2: the machine is built at Karan's factory, so the customer does not control it as it is created. Not met.
Test criterion 3: the asset has no alternative use, but Karan has no enforceable right to payment for work to date. Both parts are needed, so this is not met.
No over-time criterion is met, so revenue is recognised at a point in time, when control passes. Delivery and acceptance on 20 March are the evidence of control passing.
Revenue is ₹9,00,000 in the year ended 31 March. Costs of ₹6,00,000 go to cost of sales.
Profit = 9,00,000 − 6,00,000 = ₹3,00,000. Costs incurred before delivery are held as inventory (work in progress) under IAS 2 until control passes, then expensed to cost of sales.

Answer: Revenue of ₹9,00,000 is recognised in full on 20 March, giving a profit of ₹3,00,000 for the year.

Exam tips

In OT questions, the trap is usually one missing criterion. Read for words such as customer's land, enforceable right to payment and alternative use.
Write cumulative revenue first and subtract prior years. This avoids the most common arithmetic error and shows your method for part marks in Section C.
Label balances precisely: contract asset, contract liability or receivable. A receivable is an unconditional right to payment.
Always check total expected costs against the price. A loss-making contract is a favourite twist.
In written answers, name the criterion you used and link it to a fact in the scenario. A conclusion without reasons earns little.

Practice questions from Revenue

Recognising Revenue Over Time or at a Point in Time in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Recognising Revenue Over Time or at a Point in Time: frequently asked questions

What is the difference between over time and point in time revenue recognition?

Over time means you recognise revenue gradually as you perform, because one of the three IFRS 15 criteria is met. Point in time means you recognise all the revenue at once when control passes to the customer. You test over time first, and point in time is the default.

Do all three over-time criteria have to be met?

No. Only one has to be met. The third criterion has two parts that must both be true: the asset has no alternative use to you and you have an enforceable right to payment for work completed to date.

What is the difference between the input and output methods?

The output method measures progress by value delivered to the customer, such as units, milestones or work certified. The input method measures it by your effort, usually costs incurred as a share of total expected costs. Choose whichever best reflects the transfer of control.

What are the accounting entries for a long-term contract?

Revenue earned: debit the contract asset (or the contract liability) and credit revenue. Invoice: debit receivables. Credit the contract asset to the extent revenue is already recognised and the right to payment is now unconditional. Credit the contract liability for any excess billed ahead of performance. Costs: debit cost of sales and credit cash, payables or inventory. Present the net position contract by contract, as either a contract asset or a contract liability.