Revenue over the journey (in-transit services)

Freight and cargo transport is typically a single performance obligation satisfied over time, because the customer simultaneously receives and consumes the benefit as the cargo moves toward destination. Getting this wrong (e.g. recognizing revenue only on final delivery) misstates revenue timing in every period with open shipments, distorts period-end margins, and misstates contract assets/liabilities on the balance sheet.

Does the customer simultaneously receive and consume the benefit of the transport service as the carrier performs (would another carrier taking over mid-journey need to substantially re-perform the distance already covered)? Which single output measure (transit days, distance, or milestones) best reflects the pattern of service transfer? Are any shipments still in transit at the reporting date, requiring a contract asset or liability?

1) Confirm the service is satisfied over time: transport normally qualifies because the customer simultaneously receives and consumes the benefit as the cargo moves (another carrier taking over mid-journey would not need to re-perform the distance already covered). An enforceable right to payment for performance to date is relevant only to the separate criterion for an asset with no alternative use and is not a precondition here. 2) If over time, select a single progress measure (distance, transit days, or milestone legs) that best depicts transfer of the service; do not default to invoicing dates. 3) At each period end, identify all shipments in transit and compute percentage complete using the chosen measure. 4) Recognize revenue for the period based on progress; recognize a contract asset for revenue earned but not yet billed, or a contract liability for billings ahead of progress. 5) Reassess the progress measure if the shipment profile changes (e.g. multimodal legs with materially different service intensity).

Measure progress using an output method (distance travelled, transit days elapsed, or port-to-port milestones) rather than an input/cost method, since transport service intensity is usually roughly linear with these outputs. At each reporting date, remeasure the contract asset/liability: contract asset = revenue recognized to date less amounts billed; contract liability arises if billed amounts exceed revenue earned. Reassess the output measure if a shipment's mix of legs changes materially (e.g. sea leg vs. last-mile, which may have different margins).

Disclose: (1) the method used to measure progress for in-transit revenue (output method basis); (2) the resulting contract asset and/or contract liability balances at period end and their movement; (3) significant judgments in determining that control transfers over time rather than at a point in time; (4) disaggregation of freight revenue by mode/route where material; (5) accounting policy note on revenue recognition timing for transport services.

• Recognizing full freight revenue only on proof of delivery instead of over the transit period
• using invoicing dates (which often lag or lead actual transit progress) as a proxy for revenue recognition
• applying a single global percentage-complete assumption instead of tracking each open shipment
• ignoring materially different service intensity across legs of a multimodal shipment when selecting the progress measure
• failing to true up estimated progress against actual delivery data at year end.