Output method
An output method measures progress by the value transferred to the customer to date relative to the remaining goods or services, using measures such as milestones reached, units delivered or time elapsed. A practical expedient lets an entity recognise the amount it has a right to invoice when that amount corresponds directly to value transferred.
Standard references
- ASC 606606-10-55-16 to 55-19 (55-18: right-to-invoice expedient)
- IFRS 15paragraphs B14–B17
- Ind AS 115paragraphs B14–B17
Worked example
Illustrative: a $25,000 fixed fee to migrate 50 legacy entities, plus advisory hours billed at $150 per hour.
- Migration: 20 of 50 entities migrated at period end. Progress 40%; revenue $10,000.
- Advisory: 30 hours delivered at a rate that reflects value to the customer. Under the right-to-invoice expedient, revenue is 30 × $150 = $4,500.
Result: Period revenue of $14,500 across the two obligations.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Using milestones that leave material work in progress unrecognised.
- Applying the right-to-invoice expedient where rates are front-loaded and do not match value delivered.
- Mixing measures of progress within one performance obligation.