IFRS 15 Over Time vs Point in Time — Core Rule

Under IFRS 15, an entity recognises revenue either over time or at a point in time depending on when control of the promised good or service transfers to the customer — revenue is recognised over time only if at least one of three specific criteria is met; otherwise, recognition defaults to a point in time.

How IFRS 15 Over Time vs Point in Time Works

The over-time vs point-in-time determination is made for each distinct performance obligation identified in the contract (IFRS 15.22). The sequence matters: over-time criteria are tested first, and point-in-time recognition is the default fallback.

Over-time recognition applies if any one of three criteria is satisfied (IFRS 15.35)

• Criterion A — Simultaneous consumption: The customer simultaneously receives and consumes the benefits as the entity performs (e.g., routine cleaning services, payroll processing). This reflects ongoing utility transferred with no asset accumulating on the entity's side (IFRS 15.B3–B4).
• Criterion B — Entity creates or enhances a customer-controlled asset: The entity's performance creates or enhances an asset (e.g., work-in-progress) that the customer controls as it is created (IFRS 15.35(b)). Common in construction on customer-owned land.
• Criterion C — No alternative use + right to payment: The asset has no alternative use to the entity (IFRS 15.36) and the entity has an enforceable right to payment for performance completed to date, including a reasonable profit margin, even if the customer cancels (IFRS 15.37). This applies to bespoke manufactured goods and specialist software builds.

If none of the three criteria is met, revenue is recognised at a point in time (IFRS 15.38). Indicators of control transfer at a point in time include:

• The entity has a present right to payment (IFRS 15.38(a))
• The customer has legal title (IFRS 15.38(b))
• Physical possession has transferred (IFRS 15.38(c))
• The customer has the significant risks and rewards of ownership (IFRS 15.38(d))
• The customer has accepted the asset (IFRS 15.38(e))

Measurement of progress for over-time obligations uses either output methods (surveys, milestones, units delivered — IFRS 15.B15) or input methods (costs incurred, labour hours — IFRS 15.B18). The method selected must depict the transfer of control faithfully and be applied consistently (IFRS 15.41).

IFRS 15 Over Time vs Point in Time — Practical Example

Scenario A — Over time (Criterion C): A manufacturer contracts to build bespoke industrial equipment for €500,000. The equipment cannot be repurposed to another customer (no alternative use), and the contract gives the entity an enforceable right to payment for work done if the customer cancels. Total expected cost: €400,000. At month-end, costs incurred: €100,000 (25% complete).

Revenue recognised = 25% × €500,000 = €125,000

Scenario B — Point in time: The same manufacturer also sells a standard catalogue machine for €80,000, delivered ex-works. Control transfers on delivery; no over-time criterion is satisfied.

IFRS 15 Over Time vs Point in Time — Common Pitfalls

• Misapplying the "alternative use" test without checking enforceability of payment. Both conditions in Criterion C must be met concurrently (IFRS 15.35(c)). Entities often conclude on alternative use without verifying that contractual or legal provisions give a right to payment for partial performance — an audit red flag in bespoke manufacturing.

• Confusing risks-and-rewards (IAS 18 legacy thinking) with the control model. Under IFRS 15, control transfer is the sole driver. A bill-and-hold arrangement may still require point-in-time recognition even if risk has passed, unless strict bill-and-hold criteria in IFRS 15.B81–B83 are met.

• Using an input method without adjusting for wasted inputs. If costs incurred include significant inefficiencies or wasted materials, including them in the progress calculation overstates completion percentage. IFRS 15.B19 requires exclusion of inputs that do not depict transfer of control.

IFRS 15 Over Time vs Point in Time — Key Paragraphs

• IFRS 15.35 — The three criteria for over-time revenue recognition (the primary decision point)
• IFRS 15.36–37 — Definition of "no alternative use" and "right to payment for performance completed to date"
• IFRS 15.38 — Point-in-time recognition and the five indicators of control transfer
• IFRS 15.41–42 — Selecting and applying the method of measuring progress (output vs input)
• IFRS 15.B3–B4 — Guidance on the simultaneous-receipt-and-consumption criterion
• IFRS 15.B81–B83 — Bill-and-hold arrangements and specific control-transfer conditions