IFRS 15 — Cost to fulfill a contract

Date recorded:


In March 2019 the Committee discussed a submission about whether an entity, which is a property developer and revenue from property sales are recognised over time, recognises an asset or an expense in respect of the cost incurred to fulfil a performance obligation. Output method is used to measure the progress towards the satisfaction of the performance obligation.

The staff analyse that in order to fulfil the capitalisation criterion as required in IFRS 15:95(b), the cost incurred has to be used in satisfying the performance obligation in the future. During the process of construction, there is no resource created in order to satisfy the performance obligation in the future. Instead, the resource (e.g. a contract asset or a receivable) arose from past performance. Accordingly, the cost to fulfil the contract is recognised as an expense in accordance with the requirement in IFRS 15:98(c).

Comment letters were received and majority agree with the Committee's decision not to add the matter to its standard-setting agenda. However, one respondent comments that the tentative agenda decision does not adequately explain the reason why costs described in the submission do not meet the criteria in IFRS 15:95 to be recognised as an asset.

Staff analysis

In responding to the comment, the staff suggest highlighting in the agenda decision the linkage between IFRS 15:95(b) & 98(c), which states the criteria for capitalising the cost as asset and scenario of expensing the cost as incurred respectively.

Staff recommendation

The staff recommended finalising the agenda decision subject to the above-mentioned changes.


All Committee members were supportive of the agenda decision. The Committee decided, by a majority of votes, to adopt the wording in the agenda decision.

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