IFRS 15 — Cost to fulfil a contract

Date recorded:

Cost to fulfil a contract (Agenda Paper 2)


The Committee received 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. The output method is used to measure the progress towards the satisfaction of the performance obligation.

Staff analysis

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).

Staff recommendation

The staff recommend that the Committee does not add the matter to its standard-setting agenda but publish an agenda decision.


Most Committee members were supportive of the staff analysis. A Committee member highlighted the difference in accounting outcome if the input method is used in measuring the progress of performance in revenue recognition. The application of both the input method and the percentage-of-completion of the superseded IAS 11 Construction Contracts will result in a stable profit margin throughout the construction period. However, there will be a different margin across the reporting period if an entity applies the output method (since the completion percentage applies to the recognition of revenue but not the expenses). The staff reiterated that an entity should adopt the method that most appropriately depicts the transfer of control of the goods and services provided to customers. Therefore, the accounting outcome depends on the nature of goods and services (and therefore the difference in accounting outcome is driven by the different nature of businesses).

The Committee decided, by a majority of votes, to publish the tentative Agenda Decision with the above-mentioned addition.

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