IFRS 15 - Contracts with Multiple Performance Obligations and Timing of Revenue Recognition: Over Time or at a Point in Time

In practice, customer contracts at many Vietnamese enterprises often do not include only a single good or service, but may contain multiple promises provided in one package for a single combined price. For example, a manufacturing entity may sell machinery together with installation and maintenance; a trading entity may sell equipment with an extended warranty; a software entity may provide a licence or access right together with implementation and technical support; a telecommunications entity may provide equipment together with subscription services; a construction contractor may perform design, construction and operation; or a service entity may provide various services under the same contract.

The important point is that IFRS 15 does not automatically treat all promises in a contract as a single revenue unit, nor does it determine the timing of revenue recognition solely based on the contract signing date, invoice date, cash collection date or overall acceptance date. The entity must first determine whether the promised goods or services are separate performance obligations or need to be combined into a performance obligation; it then determines when each obligation is satisfied. Therefore, within the same contract, one obligation may be recognized as revenue over time while another may be recognized at a point in time.

The discussion below focuses on Step 2 (identifying performance obligations) and Step 5 (timing of satisfaction) in the five-step framework of IFRS 15.

The five-step framework and the position of the two key steps under IFRS 15

IFRS 15 prescribes a single model for all contracts with customers, comprising five steps: identify the contract (Step 1); identify the performance obligations in the contract (Step 2); determine the transaction price (Step 3); allocate the transaction price to each performance obligation (Step 4); and recognize revenue when or as the entity satisfies a performance obligation (Step 5). The overarching principle of the Standard is that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services (IFRS 15.2). 

This article goes into detail on Step 2 and Step 5, because these are the two steps that directly determine the timing and amount of revenue when a contract contains multiple components. Step 2 answers the question “how many revenue units does this contract contain”, while Step 5 answers “when is each of those units recognized”. The other two steps relating to determining and allocating the transaction price are mentioned only to the extent necessary to complete the examples.

Performance obligations and the “distinct” criterion

At contract inception, the entity must review the promised goods and services and identify each promise as a performance obligation if it is a distinct good or service, or a series of goods or services that are substantially the same and have the same pattern of transfer (IFRS 15.22). A performance obligation is the smallest revenue recognition unit in the contract: each obligation is allocated a portion of the transaction price and is recognized according to its own satisfaction milestone.

A good or service is considered distinct when both conditions are met (IFRS 15.27). First, the capable-of-being-distinct condition: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer. Second, the distinct-within-the-context-of-the-contract condition: the promise to transfer the good or service is separately identifiable from the other promises in the contract. The first condition considers the good or service itself; the second considers its relationship with the other promises.

The Standard provides three indicators that multiple promises are not separately identifiable within the context of the contract and therefore must be combined into a single performance obligation (IFRS 15.29): the entity provides a significant integration service to combine the goods or services into a combined output for which the customer has contracted (IFRS 15.29(a)); one or more of the goods or services significantly modify or customize another good or service (IFRS 15.29(b)); or the goods or services are highly interdependent or highly interrelated (IFRS 15.29(c)).

The logic of this requirement is that the Standard seeks to ensure that the revenue unit reflects what the customer is actually purchasing. If the customer purchases each component because each component has its own utility value, then each component is a unit of transfer and should be recognized separately according to its own satisfaction milestone. Conversely, if what the customer has contracted for is a combined result and each component is merely an input used to create that result, splitting the arrangement into smaller units would distort the pattern of transfer; in that case the whole package is a single obligation. This is why the condition of being distinct within the context of the contract exists alongside the capable-of-being-distinct condition: a component may be usable on its own but still not be distinct if, in the specific contract, it is integrated into a combined output.

A series of goods or services that are substantially the same and have the same pattern of transfer, such as recurring services provided regularly over multiple periods, is accounted for as a single performance obligation (IFRS 15.22(b) and 15.23), rather than being separated into numerous small obligations. This grouping applies only when each part of the series satisfies the criteria for recognition over time and the same method is used to measure progress.

Control: the basis for the timing of recognition

Revenue is recognized when the entity satisfies a performance obligation by transferring a promised good or service to the customer, and a good or service is transferred when the customer obtains control (IFRS 15.31). Control of an asset is the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset (IFRS 15.33), including the ability to prevent other entities from directing the use of and obtaining the benefits from the asset.

Making control the foundation, instead of the transfer of risks and rewards, is a fundamental conceptual change from the previous revenue standard. The transfer of risks and rewards becomes one indicator of the transfer of control rather than the decisive criterion. This change allows a consistent logic to be applied to both goods and services, and in particular allows revenue to be recognized over time consistently when the customer controls the asset throughout the entity’s performance.

Right of return and revenue recognition after control has transferred

Under the previous risks-and-rewards approach, the customer’s continuing right of return could easily be interpreted as meaning that not all risks had transferred, and revenue could be deferred until the return period expired. IFRS 15 separates the two issues: control of the goods has transferred when the customer receives the goods and is able to direct their use, while the possibility of return is a factor that makes the amount to which the entity is entitled uncertain. The right of return is therefore accounted for as variable consideration in the transaction price, rather than as an indication that control has not transferred; the right of return itself is also not a separate performance obligation (IFRS 15.B20–B22).

Accordingly, revenue is still recognized when control transfers even if the product remains within the return period, but only for the portion to which the entity expects to be entitled with certainty. Specifically, at the time of transfer, the entity recognizes three amounts simultaneously (IFRS 15.B21): revenue for the quantity of goods expected not to be returned; a refund liability equal to the amount expected to be refunded to the customer for the portion of goods expected to be returned (IFRS 15.55); and an asset representing the right to recover returned goods, measured by reference to the former carrying amount of the inventory less any expected costs to recover those products and any potential decreases in the value of the returned products (IFRS 15.B25), with a corresponding adjustment to cost of goods sold.

The amount of revenue recognized is constrained by the Standard’s mechanism for constraining estimates of variable consideration: the entity includes variable consideration in the transaction price only to the extent that it is highly probable that a significant downward adjustment to cumulative revenue recognized will not occur when the uncertainty is resolved (IFRS 15.56). A prerequisite is that the entity can reliably estimate the return rate based on historical data or other evidence. When a reliable estimate cannot be made, for example for a completely new product with no history, the corresponding revenue is deferred until the uncertainty is resolved, typically when the return period expires. The entity updates its estimate and the refund liability at the end of each reporting period.

From the perspective of the Vietnamese accounting regime, Circular 99/2025/TT-BTC continues the traditional approach and does not provide specific guidance on recognizing revenue based on an advance estimate of the proportion of goods expected to be returned. Unlike IFRS 15, which requires the entity to estimate and separately recognize at the time of sale a refund liability and an asset for the right to recover returned goods, the current accounting regime initially recognizes revenue based on the contract value and adjusts revenue downward through Account 521 (Revenue deductions) only when an actual sales return occurs. Consequently, for the same transaction with a right of return, IFRS reporting reflects the expected effect of returns in net revenue in the period of sale, whereas reporting under the Vietnamese accounting regime recognizes that effect in the period in which returns actually occur. When preparing IFRS financial statements, the entity needs an adjusting entry to bring revenue onto an estimated basis and recognize the corresponding refund liability and asset for the right to recover returned goods.

Performance obligations satisfied over time or at a point in time

For each identified performance obligation, the entity must determine at contract inception whether the obligation is satisfied over time or at a point in time. The Standard reverses the order of assessment compared with common intuition: first consider whether the obligation meets the criteria for recognition over time; only if none of the criteria is met is it recognized at a point in time.

A performance obligation is satisfied over time if one of the following three criteria is met (IFRS 15.35):

• The first criterion (IFRS 15.35(a)): the customer simultaneously receives and consumes the benefits provided by the entity as the entity performs: this is typical of recurring, routine services where, if another entity were to take over the remaining work, it would not need to substantially re-perform work already completed.
• The second criterion (IFRS 15.35(b)): the entity creates or enhances an asset that the customer controls as the asset is created or enhanced; because the customer controls the work in progress, the transfer occurs continuously.
• The third criterion (IFRS 15.35(c)): the asset created by the entity has no alternative use to the entity (IFRS 15.36), and the entity has an enforceable right to payment for performance completed to date (IFRS 15.37), where the right to payment must include compensation for the costs incurred and a reasonable profit margin.

If the performance obligation does not meet any of the three criteria above, it is satisfied at a point in time, and the entity recognizes revenue when the customer obtains control (IFRS 15.38). Indicators of the transfer of control at a point in time include: the entity has a present right to payment; the customer has legal title; the customer has physical possession; the customer has the significant risks and rewards of ownership; and the customer has accepted the asset.

When a performance obligation is recognized over time, the entity must select a method for measuring progress toward complete satisfaction and apply it consistently to similar performance obligations (IFRS 15.39–40). There are two groups of methods: output methods, which measure the value of the results transferred to the customer (for example, quantities accepted); and input methods, which measure resources consumed relative to total expected resources (for example, costs incurred as a proportion of total costs). If the entity cannot reasonably measure progress but expects to recover the costs incurred, revenue is recognized only to the extent of costs incurred until such time as the outcome can be reasonably measured (IFRS 15.44–45).

Common types of contracts with multiple performance obligations in Vietnam

Comparison of VAS and IFRS

From 2026, when analyzing revenue accounting under Vietnamese regulations, VAS 14 – Revenue and Other Income must be considered together with Circular 99/2025/TT-BTC. Circular 99 has introduced several principles that bear similarities to IFRS 15, such as reflecting the substance of transactions, allocating revenue for transactions with multiple components, and considering present and future supply obligations. However, Vietnamese accounting has not adopted the five-step model and the control-transfer model on a consistent basis in the same way as IFRS 15.

Example 1: a comprehensive training contract with multiple performance obligations

Education Joint Stock Company A is an entity providing vocational skills training services. The Company signs a training contract with a corporate customer for a package covering 100 employees, with a total contract price of VND 2,000 million, paid in full by the customer upon signing. The package comprises four components: printed course materials delivered to each participant; access to an online learning platform for 12 months; ten scheduled in-person training sessions; and organization of an examination and issuance of a completion certificate at the end of the program. Unit in the example: VND million.

Identifying performance obligations

All four components meet the two distinct criteria in IFRS 15.27. For the capable-of-being-distinct criterion (IFRS 15.27(a)): participants can benefit from each component independently: the course materials can be used for self-study, the online platform provides pre-recorded lectures, the in-person sessions provide additional interaction, and the examination and certificate validate competency. For the distinct-within-the-context-of-the-contract criterion (IFRS 15.27(b)): the Company does not provide a significant integration service to combine the four components into a single combined output, the components do not significantly modify or customize one another, and they are not highly interdependent (they do not fall within IFRS 15.29). Therefore, the contract has four separate performance obligations. This classification is a matter of judgment; if the program is designed so that the four components have value only when used together as an integrated pathway, the conclusion could be different.

Allocation of the transaction price based on stand-alone selling prices

The Company sells each component separately and can therefore determine the stand-alone selling price of each obligation. The total stand-alone selling prices (2,500) exceed the transaction price (2,000); the difference is a package discount allocated proportionately to all four obligations (allocation factor 2,000 / 2,500 = 0.8).

Determining when each performance obligation is satisfied

The printed course materials are goods and do not meet any of the three over-time criteria, so they are recognized at a point in time when the participants obtain control of the course materials (IFRS 15.38): 160 is recognized upon delivery.

Access to the online platform meets IFRS 15.35(a): participants simultaneously receive and consume the benefits of access throughout the access period, so revenue is recognized over time. Because the benefits are provided evenly, the Company measures progress based on the passage of time and recognizes revenue evenly: 960 / 12 = 80 per month. If the substance of the access right is a licence of intellectual property relating to the course content, the entity applies the licensing guidance in IFRS 15.B52–B63: if it is a right to access intellectual property that the entity continues to maintain and update, revenue is still recognized over time (IFRS 15.B58); if it is merely a right to use content as it exists at the time the licence is granted, revenue is recognized at a point in time.

The ten in-person training sessions also meet IFRS 15.35(a); assuming the sessions are equivalent in duration and value, the Company measures progress using an output method based on the number of sessions delivered: 640 / 10 = 64 per session. If the sessions differ significantly in value, the measurement method must faithfully depict the extent of transfer rather than allocating revenue evenly (IFRS 15.39).

Organizing the examination and issuing the certificate is an event completed when the examination is held and the certificate is issued; no component of this obligation is consumed by the customer gradually before that point, so 240 is recognized at a point in time.

Journal entries

Amounts paid by the customer in advance before the entity satisfies its obligations are tracked in a contract liability account. This corresponds to Advances from customers under Circular 99/2025/TT-BTC; when preparing IFRS financial statements, the advance may be reclassified and presented as a contract liability.

Upon signing the contract and receiving payment:

Debit  Cash (B/S)                                 2.000
Credit  Contract liability (B/S)            2.000

Upon delivery of the printed course materials:

Debit  Contract liability (B/S)                                       160
Credit  Sales revenue - course materials (P/L)           160

Each month when providing access to the platform (one month illustrated):

Debit  Contract liability (B/S)                                                          80
Credit  Service revenue - online learning platform (P/L)             80

Upon completion of each training session (one session illustrated):

Debit  Contract liability (B/S)                                                     64
Credit  Service revenue - training session (P/L)                      64

When the examination is held and the certificate is issued:

Debit  Contract liability (B/S)                                                                   240
Credit  Service revenue - examination and certification (P/L)             240

Total revenue recognized over the life of the contract: 160 + (80 × 12) + (64 × 10) + 240 = 2,000, equal to the transaction price. The contract liability balance gradually decreases to zero when the final obligation is satisfied.

Example 2: a contract that cannot be separated into multiple performance obligations

Education Joint Stock Company A enters into another contract: the design and implementation of a customized training program at the request of a corporate customer, including a needs assessment, development of customized course materials, training delivery and assessment of results, for a price of 900. In this contract, the design of the customized course materials and the training delivery are highly interdependent, and the Company provides a significant integration service to create a complete program for the customer (IFRS 15.29(a) and 29(c)); the course materials are developed specifically for the customer and have no alternative use to the Company. Therefore, the entire contract is a single performance obligation.

This obligation is recognized over time if it meets IFRS 15.35(c): the asset created has no alternative use to the Company, and the contract gives the Company an enforceable right to payment for work completed, including a reasonable profit margin (IFRS 15.37). The right-to-payment condition is the key point and must be assessed based on the specific contractual terms: many training contracts in Vietnam do not provide such a right, in which case the obligation does not meet criterion 35(c) and instead is recognized at a point in time when the program is handed over. If considered independently, the training activity itself could satisfy 35(a), but because the entire package is a single integrated obligation that also includes the design stage, criterion 35(c) is considered for application to the entire obligation. Assuming the contract in the example provides an enforceable right to payment, the Company measures progress using an input method based on costs (cost-to-cost). Assume the total expected cost to complete is 600; at the end of the reporting period, costs incurred are 240, corresponding to progress of 240 / 600 = 40%. Revenue recognized in the period is 900 × 40% = 360. When costs incurred are not proportionate to the extent of transfer-for example, design costs are concentrated in the early stage-the entity needs to adjust the cost-based measure of progress so that it does not misstate the amount transferred (IFRS 15.B19).

Journal entry for the period (assuming the work has not yet been accepted and a contract asset is recognized):

Debit  Contract asset (B/S)                                                             360
Credit  Service revenue - contractual training services (P/L)     360

Common errors and implementation challenges in Vietnam

Treating the entire contract or the entire invoice as a single revenue unit. A contract may contain multiple goods or services that are transferred at different times. Recognizing all revenue at the same time merely because the contract has one combined price, the customer pays once, or the entity issues one invoice may not faithfully reflect the pattern of transfer under IFRS 15. The entity needs to review each promise in the contract and identify performance obligations in accordance with IFRS 15.22–30.

Separating or combining performance obligations based on the form of the contract rather than the substance of the promises. The fact that a contract lists multiple items separately does not mean that each item is a separate performance obligation. Conversely, the fact that multiple goods or services are sold as a package does not mean that they must be accounted for together. The entity must assess whether the customer can benefit from each good or service and whether the promise is distinct within the context of the contract under IFRS 15.27–29. This is often one of the areas requiring the greatest judgment.

Using the invoice date, cash collection date or acceptance date as the sole basis for recognizing revenue. These milestones may provide relevant evidence but do not automatically determine the timing of revenue recognition under IFRS 15. For each performance obligation, the entity must assess the three criteria in IFRS 15.35 to determine whether the obligation is satisfied over time; only if none of the criteria is met is revenue recognized at a point in time when control transfers in accordance with IFRS 15.38.

Lack of stand-alone selling price data when a contract contains multiple performance obligations. Many entities sell products and services only as a package and therefore do not have directly observable selling prices for each component. However, the absence of a separately listed price does not mean that the entity may allocate the transaction price arbitrarily. When an observable stand-alone selling price is not available, the entity must estimate it using appropriate methods under IFRS 15.78–80 and retain the basis for those estimates.

Mechanically applying an over-time recognition method. Even after concluding that a performance obligation is satisfied over time, the entity must select a method for measuring progress that faithfully depicts the transfer of goods or services to the customer. Automatically spreading revenue evenly over the number of months or using the ratio of costs incurred to total costs in every case may result in misstatement if that method does not appropriately reflect progress toward completion.

Failing to fully assess terms that may affect the amount and timing of revenue recognition. Discounts, bonuses and penalties, rights of return, refunds, loyalty points, service warranties, rights to purchase additional goods or services at a discount, or outcome-dependent payments may significantly affect the transaction price or create another performance obligation. The entity needs to read all commercial terms rather than relying only on the name of the product or service.

Incorrectly assessing the principal-versus-agent role when third parties are involved in the contract. Distribution, e-commerce, travel, logistics, advertising, software and many service models often involve goods or services supplied by third parties. The entity must determine whether it controls the good or service before it is transferred to the customer or merely arranges for another party to provide it; this conclusion determines whether revenue is presented on a gross or net basis.

Data systems and accounting processes do not yet track revenue at the performance-obligation level. This is a significant practical difficulty in applying IFRS 15. A contract may contain multiple obligations with different allocated amounts and satisfaction dates, while the current accounting system may track only by invoice or by contract. The entity may therefore need to add data on performance obligations, stand-alone selling prices, allocated transaction prices, progress toward completion and contract asset or contract liability balances.

Frequently asked questions

If a contract contains multiple products or services, must it always be separated into multiple performance obligations? No. The fact that a contract contains multiple components is only the starting point of the analysis. Each good or service is accounted for as a separate performance obligation only if it meets the distinct criteria in IFRS 15.27. If the entity provides a significant integration service, one component significantly modifies another component, or the components are highly interdependent, they may need to be combined into a single performance obligation under IFRS 15.29.

If the customer pays the full contract price upfront, may the entity recognize all revenue immediately? Not necessarily. The timing of cash collection and the timing of revenue recognition are two different matters. If the entity has received cash but has not yet satisfied the performance obligation, the corresponding amount is generally presented as a contract liability. Revenue is recognized only when or as the corresponding performance obligation is satisfied.

If a contract has multiple obligations but the entity does not sell each component separately, how is the transaction price allocated? IFRS 15 does not require an observable stand-alone selling price for every obligation. When an observable stand-alone selling price is not available, the entity must estimate the stand-alone selling price under IFRS 15.78–80, for example using an adjusted market assessment approach or an expected cost plus a margin approach. The residual approach may be used only when the conditions in the Standard are met.

Is acceptance always the point at which revenue is recognized? No. An acceptance certificate or customer acceptance may be an important indicator in some contracts, but it does not always determine the timing of recognition. If a performance obligation meets the criteria for recognition over time, revenue may already have been recognized during performance before final acceptance. Conversely, for an obligation recognized at a point in time, the overall indicators of the transfer of control need to be assessed.

Can revenue be recognized evenly over the contract term if the performance obligation is satisfied over time? Only if a time-based method faithfully depicts how the goods or services are transferred to the customer. IFRS 15 requires the method for measuring progress to reflect the extent to which the performance obligation has been satisfied. Therefore, some services may be suited to straight-line recognition over time, while manufacturing, construction, system implementation or services based on volumes of work may require a different method.

Are incentives, loyalty points, warranties or options to purchase additional goods or services always selling expenses? No. Depending on the substance of the terms, these rights may create a separate performance obligation, form part of variable consideration, or be accounted for under specific IFRS 15 guidance. The entity needs to analyze the right actually received by the customer rather than automatically recognizing the entire amount as an expense at the time of sale.

When an entity purchases a service from a third party and then provides it to a customer, is revenue recognized gross or net? This depends on whether the entity is a principal or an agent. If the entity controls the good or service before it is transferred to the customer, the entity is generally the principal and recognizes revenue on a gross basis. If the entity merely arranges for another party to provide the good or service, revenue is generally only the fee or commission to which the entity is entitled.

If an entity has already accounted for a transaction under Circular 99/2025/TT-BTC, does it still need to review the contract when preparing IFRS 15 financial statements? Yes. Circular 99 has brought the Vietnamese accounting approach closer to IFRS 15 in certain principles such as supply obligations and allocation of revenue based on stand-alone selling prices. However, when preparing IFRS financial statements, the entity still needs to review in detail the criteria for identifying performance obligations, timing of satisfaction, variable consideration, rights of return, significant financing components, contract costs and other measurement requirements of IFRS 15.

Correctly identifying performance obligations and the timing of revenue recognition is a foundational step for the entire IFRS 15 conversion process; our IFRS conversion advisory team can assist entities in reviewing their contract portfolios and establishing appropriate revenue recognition policies.

This article has been prepared for general information and technical guidance purposes and does not constitute accounting, audit, tax or legal advice for any specific transaction or entity. The figures, assumptions and journal entries in this article are illustrative only and should be adjusted to reflect the actual circumstances, professional judgment and documentation of each entity. We accept no responsibility for any loss arising from the use of the information in this article without appropriate professional advice. For assistance with a specific case, please contact our IFRS conversion advisory team.