IFRS 15 sets out criteria for when a performance obligation is satisfied. Which one of the following statements is reasonable?
Home Construction Ltd. enter into a contract to construct a house for Mr. and Mrs. Fluitt on the five-hectare piece of land the Fluitt’s own. The construction contract states that the Fluitt’s own any work-in-progress as the house is being built. Therefore, Home Construction Ltd. control the asset as it is constructed.
Fitz Inc. contracts with Cinema Ltd. to write a screen-play about an iconic lion. The screen-play may take up to 18 months to complete. The contract states that Fitz Inc. is only entitled to compensation for potential loss of profit if the contract were to be terminated. Fitz Inc. has an enforceable right to payment.
Assembly Inc. enters into a contract with Teslo Ltd. to assemble a car component to be used in the construction of Teslo’s electric car. At reporting date Assembly Inc. has sourced standard inventory items which can be used in any component assembly. The standard inventory items have no alternative use to Assembly Inc.
Wipe & Clean Inc. enters into a ten-year commercial cleaning contract with Maverick Sound Studios Inc. Wipe & Clean Inc. cleans Maverick’s premises after hours. Wipe & Clean Inc. recognizes revenue over time because Maverick Sound Studios Inc. simultaneously receives and consumes the benefits as Wipe & Clean Inc. cleans.
The statement that is reasonable regarding the satisfaction of a performance obligation under IFRS 15 is:
"Wipe & Clean Inc. enters into a ten-year commercial cleaning contract with Maverick Sound Studios Inc. Wipe & Clean Inc. cleans Maverick’s premises after hours. Wipe & Clean Inc. recognizes revenue over time because Maverick Sound Studios Inc. simultaneously receives and consumes the benefits as Wipe & Clean Inc. cleans."
According to IFRS 15, a performance obligation is considered satisfied over time when the customer simultaneously receives and consumes the benefits of the good or service as the entity performs. In the context of a cleaning contract like the one between Wipe & Clean Inc. and Maverick Sound Studios Inc., the cleaning service is provided continuously, and the benefit is immediately available to the customer as the service is being performed. This aligns with the principle in IFRS 15, which requires recognizing revenue over time when the customer gains control or access to the benefits of the good or service as it is being provided.
