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An entity manufactures a customised satellite for a government agency. The asset has practical limitations against alternative use, and the entity has a right to enforce payment for work completed to date if terminated. The customer does NOT obtain control of the WIP during construction. Under Ind AS 115:
ARevenue is recognised under criterion (b) — government customer always controls work-in-progress
BRevenue cannot be recognised over time without explicit customer control of the WIP
CRevenue is recognised OVER TIME under criterion (c) — no alternative use to the entity + enforceable right to payment for work completed
DRevenue is recognised at point in time — government contracts always settle on delivery
Answer & Solution
Correct answer: C. Revenue is recognised OVER TIME under criterion (c) — no alternative use to the entity + enforceable right to payment for work completed
When criterion (a) fails (customer doesn't consume benefits as performance progresses) AND criterion (b) fails (customer doesn't control WIP), the entity falls to criterion (c). Both conditions must be met: (i) no alternative use to entity (customisation, contractual restriction), and (ii) enforceable right to payment for performance to date. Both satisfied here → over-time recognition under (c).
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