Input method
An input method measures progress toward satisfying an over-time performance obligation by the entity's efforts or inputs, such as costs incurred, labour hours or time elapsed, relative to total expected inputs. Inputs that do not depict transfer to the customer, such as wasted materials or rework, are excluded.
Standard references
- ASC 606606-10-55-20 to 55-21
- IFRS 15paragraphs B18–B19
- Ind AS 115paragraphs B18–B19
Worked example
Illustrative: a fixed-fee implementation of $40,000, budgeted at 400 hours.
- Quarter 1: 150 hours used. Progress 150 / 400 = 37.5%; revenue $15,000.
- Quarter 2: total estimate revised to 500 hours; 300 hours used to date. Progress 60%; cumulative revenue $24,000.
- Quarter 2 revenue = $24,000 − $15,000 = $9,000. The change in estimate is handled in the current period.
Result: Cumulative revenue tracks the latest estimate of total effort.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Counting rework or inefficiencies as progress.
- Not updating the total-input estimate each period.
- Using billing milestones as a proxy for inputs.