Point-in-time recognition
Point-in-time recognition applies when a performance obligation meets none of the three criteria for recognition over time. Revenue is recognised when control transfers, judged by indicators such as a present right to payment, legal title, physical possession, transfer of significant risks and rewards, and customer acceptance.
Standard references
- ASC 606606-10-25-30
- IFRS 15paragraph 38
- Ind AS 115paragraph 38
Worked example
Illustrative: a three-year on-premise term licence allocated $60,000 and 12 months of support allocated $15,000. The key is delivered and the term starts on 1 April.
- The licence is a right to use functional IP as it exists at delivery, so it is recognised at a point in time.
- 1 April: licence revenue $60,000.
- Support is a stand-ready service: $15,000 / 12 = $1,250 per month from April.
Result: $61,250 recognised in April, then $1,250 a month for the rest of the support term.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Recognising at signature before the software is available to the customer.
- Ignoring substantive customer-acceptance clauses.
- Recognising a licence renewal before the renewal period begins.