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ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue

Taro Co builds a specialised machine to a customer's unique design. The asset has no alternative use to Taro, and the contract gives Taro an enforceable right to payment for work completed to date, including a reasonable profit margin, if the customer cancels for reasons other than Taro's failure to perform. Under IFRS 15, how should Taro recognise revenue?

Taro should recognise revenue over time. The machine has no alternative use to Taro and Taro has an enforceable right to payment, including a reasonable margin, for work completed to date. Together these meet an IFRS 15 over-time criterion, so delivery or deposits do not decide timing.

  1. AOver time, because the asset has no alternative use and Taro has an enforceable right to payment for performance to dateCorrect
  2. BAt a point in time, when the machine is delivered, because the customer only obtains physical possession then
  3. CAt a point in time, when the contract is signed, because the price is fixed
  4. DOver time only if the customer pays a deposit before construction starts

Explanation

IFRS 15 requires over-time recognition where the asset has no alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. Delivery timing and deposits are not decisive, so the point-in-time options are wrong.

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