When goods or services are transferred continuously, and the customer has control over the goods or services transferred to date, it means that performance obligations are satisfied over time; for example, contract for the usage of internet services for 6 months etc. Accordingly, revenue should be recognized over time by measuring progress towards complete satisfaction of the performance obligation.
An entity can use input methods as well as output methods to measure progress of performance obligation.
Input methods
As the name suggests, input factors such as labour hours, machine hours etc. are used to measure progress. Following are some of the methods that can be used to measure progress:
- Cost incurred compared to total cost to be incurred (as a percentage)
- Labour hours used compared to total labour hours to be used (as a percentage)
- Machine hours used compared to total machine hours to be used (as a percentage)
Output methods
As the name suggests, output factors such as finished goods / results achieved are used to measure progress. Following are some of the methods that can be used to measure progress:
- Surveys of works performed
- Contract milestones approach
- Units produced compared to total units to be produced (as a percentage)