Criterion 2 (entity creates or enhances an asset that the customer controls as the asset is created or enhanced) is not met: Consulting B is not creating or enhancing an asset of which Customer C obtains control as it performs because the professional opinion is delivered to Customer C only on completion. Page | 31
Part 3 - Chapter 2: Revenue from contracts with customers (IFRS 15) Criterion 3 (entity does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date) is met: The development of the professional opinion does not create an asset with an alternative use to Consulting Firm B, because it relates to facts and circumstances that are specific to Customer C. Therefore, there is a practical limitation on Consulting Firm B’s ability to readily direct the asset to another customer. The contract’s terms provide Consulting Firm B with an enforceable right to payment, for its performance completed to date, of its costs incurred plus a reasonable margin. Because one of the 3 criteria is met, Consulting Firm B recognizes revenue relating to the consulting services over time. Conversely, if Consulting Firm B determined that it did not have a legally enforceable right to payment if Customer C terminated the consulting contract for reasons other than Consulting Firm B’s failure to perform as promised, then none of the three criteria would be met and the revenue from the consulting service would be recognized at a point in time – probably on completion of the engagement and delivery of the professional opinion. 31. The customer-specific design of the satellite restricts Manufacturer Y’s practical ability to readily direct the satellite to another customer, and the satellite does not have an alternative use to Manufacturer Y. Also Manufacturer Y has an enforceable right to payment for performance completed to date. Therefore criterion 3 is met and the construction of the satellite is a performance obligation that is satisfied over time. 32. Even though the payments made by the customer are non-refundable, the cumulative amount of those payments is not expected, at all times throughout the contract, to at least correspond to the amount that would be necessary to compensate the entity for performance completed to date. This is because at various times during construction the cumulative amount of consideration paid by the customer might be less than the selling price of the partially completed item of equipment at that time. Consequently, the entity does not have a right to payment for performance completed to date. Because the entity does not have a right to payment for performance completed to date, the entity’s performance obligation is not satisfied over time in accordance with IFRS 15.35(c).
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