Output measures
(a) In 01, entity E agrees on a fixed price contract to program customized software. The contract defines 100 features of the software. By the end of 01, 80% of these features have been programmed. Thus, E intends to recognize 80% of the contract revenue in its separate income statement and only recognize the costs (primarily salaries for the year 01) actually incurred. Programming for the remaining 20% of the features will take approximately as many hours as were necessary for the 80% already completed. It is presumed that the same hourly rate applies to the employees involved in programming.
(b) In 01, entity F concludes a fixed price contract to construct 10 miles of a highway. For these 10 miles of the highway no bridges or tunnels are necessary. Consequently, the same costs will be incurred approximately for constructing each of the 10 miles. By the end of 01, three miles of the highway have been built.
(c) In 01, entity G closes a fixed price contract to build a railroad tunnel that will have a length of five miles. By the end of 01, two miles of the tunnel have been built. G wants to recognize contract revenue on the basis of a stage of completion of 40% in its separate income statement (= two miles : five miles). The first two miles represent the part of the tunnel for which the construction requires the lowest amount of time per mile.
Required
Assess whether determining the stage of completion by means of output measures is possible according to IAS 11 in the situations described above.