Start with the performance obligation and control
For a performance obligation satisfied over time, Ind AS 115 paragraphs 39–43 require a measure of progress that faithfully depicts performance. Paragraph B19 explains why an input such as an expensive procured component may distort a cost-to-cost measure. Its example of revenue equal to cost applies where the required facts are expected at contract inception; it does not follow simply from placing goods on a site.
Read the applicable text: MCA: Ind AS 115, paragraphs 35, 38–45, 98, B18–B19 and B34–B38.
Test all four conditions in the B19 example
Under B19(b), the good is not distinct; the customer is expected to obtain control of it significantly before receiving the related services; the cost is significant relative to the total expected costs of fully satisfying the performance obligation; and the entity procures the good from a third party without significant involvement in designing and manufacturing it, while acting as principal. Support those facts and the actual transfer of control. If they are not established, review the appropriate measurement method rather than applying the example by default.
Remove the distortion in both parts of the calculation
In a simple cost-to-cost model with one qualifying item, exclude its cost from the progress numerator and denominator for the remaining work. When the customer controls the qualifying item, recognise the item’s cost as revenue and expense with no margin on it at that point. Apply the remaining-work percentage to the transaction price net of that cost. Before control transfers, do not recognise cost-equivalent revenue for the item. Keep separate evidence of other costs that do not depict performance, such as significant unexpected inefficiency under B19(a).
Reconcile the period movement, not just the cumulative result
The examples assume a single performance obligation, stated transaction price and controlled item unless indicated, and no changes other than those stated. They assume progress can be measured reasonably; if it cannot, paragraphs 44–45 govern the limited recognition available where incurred costs are expected to be recovered. Compare cumulative revenue with prior recognition to find the current period amount. Reconcile revenue and costs separately from billings and cash. Recalculate progress at each reporting date. Paragraph 43 treats a change in the measure of progress resulting from a changed estimate as a change in accounting estimate under Ind AS 8. Compare revised cumulative revenue with the amount already recognised to determine the current-period effect; billing alone does not prove control.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Cost-equivalent revenue and remaining progress
Price is ₹150 lakh, qualifying equipment costs ₹40 lakh and total expected cost is ₹100 lakh. Other cost incurred is ₹30 lakh. After control of the equipment passes, remaining progress is ₹30 lakh over ₹60 lakh, or 50%. Revenue is ₹40 lakh plus 50% of ₹110 lakh, or ₹95 lakh. Recognised cost is ₹70 lakh and gross profit ₹25 lakh.
Illustrative example 2: Compare an unadjusted calculation
Using the preceding inputs, raw cost-to-cost progress would be 70%, with revenue ₹105 lakh. The adjusted cumulative amount is ₹95 lakh; the unadjusted result is ₹10 lakh higher.
Illustrative example 3: Equipment procured but not controlled by the customer
Assume all expected B19 facts and evidence of progress on other work, but control of the ₹40 lakh equipment has not passed. Other cost is ₹15 lakh out of ₹60 lakh. Remaining progress is 25% and revenue on that work is ₹27.50 lakh. Equipment contributes no revenue on these facts.
Illustrative example 4: Measure the current period
A contract’s adjusted cumulative revenue moves from ₹58 lakh to ₹95 lakh. Recognise ₹37 lakh for the current period, before any separate correction.
Illustrative example 5: Re-estimate the remaining pool
Price is ₹200 lakh, transferred qualifying material cost ₹50 lakh, and other eligible costs incurred ₹40 lakh. When total expected other costs rise from ₹80 lakh to ₹100 lakh, cumulative revenue changes from ₹125 lakh to ₹110 lakh, a ₹15 lakh downward change relative to the original estimate.
Illustrative example 6: Exclude an unexpected wasted input from progress
Price net of cost-equivalent equipment is ₹120 lakh; eligible other cost incurred is ₹24 lakh and expected eligible other costs total ₹60 lakh. A separate ₹6 lakh of unexpected wasted cost does not depict progress on the facts. Remaining progress is 40% and revenue for that work is ₹48 lakh. Counting the wasted cost in the numerator alone would incorrectly give 50% and ₹60 lakh. Excluding the waste from progress does not make it an asset: paragraph 98(b) requires expense recognition for wasted resources not reflected in the contract price.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm that the obligation is satisfied over time | Contract and paragraph 35 analysis |
| 2 | Identify the performance obligation and progress method | Revenue policy and contract working |
| 3 | Assess whether the good is distinct | Performance obligation assessment |
| 4 | Identify when the customer obtains control | Title, custody and acceptance evidence |
| 5 | Measure significance against expected total cost | Cost budget and procurement file |
| 6 | Assess third-party purchase, design and principal facts | Supplier and contract responsibilities |
| 7 | Separate equipment cost from remaining-work progress | Adjusted cost-to-cost worksheet |
| 8 | Remove qualifying costs that do not depict progress | Exception report and supported rationale |
| 9 | Calculate cumulative revenue and the period movement | Prior recognition and revised calculation |
| 10 | Reconcile costs, revenue and billing without netting | Ledger bridge and final review |
Sixteen practitioner FAQs
1. Does B19 apply to all expensive goods?
No. Determine whether costs distort progress and whether the relevant conditions are met.
2. Can a distinct good use the same example automatically?
No. The B19 example includes a condition that the good is not distinct.
3. Does sending goods to the customer’s site prove control?
Assess contractual rights and facts; delivery location is one piece of evidence.
4. Does the equipment have to be installed before recognising its cost as revenue?
The example concerns control significantly before related services, subject to all conditions.
5. What if the entity substantially designs or manufactures it?
If the entity has a significant design or manufacturing role, reassess the third-party procurement and involvement condition in B19(b)(iv) before using the adjustment.
6. What if the entity is an agent?
The example assumes the entity acts as principal for the transfer.
7. Should cost-equivalent revenue include a markup?
No. In the stated example, revenue for the qualifying equipment equals its cost.
8. Should equipment cost remain in the progress denominator?
Exclude the qualifying item from the simplified remaining-work numerator and denominator consistently.
9. Does a procurement deposit create equipment revenue?
No. Assess actual customer control and the applicable revenue requirements.
10. Can the invoice schedule replace measured progress?
Keep billings separate from the measurement of performance.
11. What if the expected remaining costs rise?
Update cumulative progress and compare with revenue already recognised.
12. What if a supplier discount changes equipment cost?
Revisit the supported cost and revenue working and review the applicable accounting effect.
13. Can abnormal waste raise progress automatically?
No. Review the B19(a) exclusion for inputs that do not depict performance.
14. How should several potentially qualifying goods be handled?
Test each item’s facts and reconcile its cost with the wider performance obligation.
15. Does zero margin on the equipment mean the whole contract has no margin?
No. The remaining work can produce margin under its supported progress calculation.
16. What evidence makes the adjustment reviewable?
Show the inception assessment, actual control, eligible costs, cumulative calculation and prior-period bridge.
Official sources
MCA: Ind AS 115, paragraphs 35, 38–45, 98, B18–B19 and B34–B38