Corporate Financial Reporting · Revenue from Contracts with Customers (Ind AS 115)

Identifying Performance Obligations under Ind AS 115

Updated 11 October 2026 · Fact-checked

A performance obligation is a promise in a customer contract to transfer a distinct good or service, or a series of distinct goods or services that are substantially the same with the same pattern of transfer. To solve questions, list every promise, test whether each is distinct, group any series, then decide principal or agent for each.

Understand Identifying Performance Obligations

Ind AS 115 recognises revenue when you satisfy a performance obligation. So Step 2 of the five-step model is to find out what you have actually promised the customer. Revenue is later allocated and recognised separately for each such promise.

At contract inception you assess the goods or services promised and identify as a performance obligation each promise to transfer either (a) a good or service (or a bundle) that is distinct, or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer (paragraph 22). Appendix A defines a performance obligation in the same words.

A series is treated as one performance obligation only if two conditions hold (paragraph 23). First, each distinct good or service in the series would be satisfied over time. Second, the same method would be used to measure progress for each of them. Daily cleaning services or monthly payroll processing are typical examples.

When another party is involved, you must decide whether you are a principal or an agent (paragraph B34). You do this separately for each specified good or service. A specified good or service is a distinct good or service, or a distinct bundle, provided to the customer. In one contract you may be a principal for some items and an agent for others.

The test is control. You identify the specified good or service, then assess whether you control it before it is transferred to the customer (B34A). A principal controls it and reports gross revenue. An agent only arranges it and reports its fee or commission.

Key rules to remember

Performance obligation (para 22): Performance obligation = promise to transfer (a) a distinct good/service or bundle, or (b) a series of distinct goods/services that are substantially the same with the same pattern of transfer; Assess at contract inception. Each such promise is accounted for separately.
Series conditions (para 23): Series = one obligation if (a) each item is satisfied over time AND (b) the same progress measure applies to each item; Both conditions must be met. Failing either means the items are separate obligations.
Principal test (B34A, B35): Principal = controls the specified good/service before transfer to the customer; Momentary legal title alone does not prove control. A principal may use a subcontractor.
Principal revenue (B35B): Revenue = gross consideration the entity expects to be entitled to; Applies when the principal satisfies the performance obligation.
Agent revenue (B36): Revenue = fee or commission, often = consideration received − amount paid to the other party; An agent does not control the good or service before transfer.

How to solve Identifying Performance Obligations questions

Use this order for any case on performance obligations. Write each step briefly in the answer, and link it to the facts.

1List every promise in the contract: main goods or services, installation, training, support, upgrades, and any items arranged through third parties.
2Test each promise for being distinct. Ask whether the customer can benefit from it on its own or with readily available resources, and whether it is separately identifiable from other promises in the contract.
3Bundle promises that are not distinct with other promises until you reach a distinct bundle. Treat that bundle as one performance obligation.
4Check for a series: repeated, substantially the same services with the same pattern of transfer. Apply both conditions of paragraph 23 and treat a qualifying series as one obligation.
5For each specified good or service involving another party, decide principal or agent. Identify the item first, then test whether you control it before transfer.
6State the revenue consequence: gross for a principal, net fee or commission for an agent, and the number of performance obligations for allocation.
7Give a clear conclusion in one line, such as 'two performance obligations: X and Y; the entity is an agent for Z'.

Quickest way: Promise list, distinct tick, control check

When to use it: Use this in 2-mark MCQs and in short case parts where you have only a few minutes.

Underline each promise in the question.
Ask: could the customer use this alone, and is it separate from the rest? If yes to both, it is a separate obligation.
If the same service repeats every day, month or year in the same way, think series, one obligation.
If a third party is involved, ask who controls the item before the customer gets it. Controls: principal, gross. Only arranges: agent, net commission.
Match the answer to the option that uses these words.

Common mistakes in Identifying Performance Obligations

Treating every item listed in the contract as a separate performance obligation.
Students match the contract list to the obligation list without testing distinctness.
Fix: Test each item. If it is not distinct from other promises, combine it into a distinct bundle and count that bundle once.
Deciding principal or agent once for the whole contract.
The contract looks like one deal with one counterparty.
Fix: Paragraph B34 requires the assessment for each specified good or service. Conclude item by item.
Treating legal title as proof of being a principal.
Students link ownership with control.
Fix: B35 says an entity does not necessarily control a good if it gets legal title only momentarily before transfer. Look at control, not paperwork.
Calling a series one obligation without checking the two conditions.
Repeating services feel like one service.
Fix: Confirm that each item is satisfied over time and that the same progress measure is used (paragraph 23).
Reporting gross revenue for an agent.
The agent collects the full amount from the customer, so it looks like revenue.
Fix: An agent recognises only its fee or commission, which may be the amount retained after paying the other party (B36).
Applying allocation rules to a contract with a single performance obligation.
Students run the allocation steps by habit.
Fix: Paragraph 75 says paragraphs 76-86 do not apply if there is only one obligation. Paragraphs 84-86 may still apply to a series with variable consideration.

Worked examples

Example 1

Vikram Travels Ltd. runs an online portal. It sells flight tickets of an airline to customers for ₹10,000 each. The airline sets the fare and carries the passenger. Vikram Travels never takes the seat inventory at its own risk and keeps a commission of ₹500 per ticket. Determine whether Vikram Travels is a principal or agent and the revenue per ticket.

Show the solution

Identify the specified service: air travel from the airline to the customer.
Assess control before transfer: the airline provides the flight and sets the fare. Vikram Travels does not control the flight service before it reaches the customer.
Vikram Travels only arranges for the airline to provide the service, so it is an agent (B36).
An agent recognises its fee or commission, which may be the net amount retained after paying the other party. Amount retained = ₹10,000 − ₹9,500 paid to the airline = ₹500.

Answer: Vikram Travels is an agent. It recognises revenue of ₹500 per ticket, not ₹10,000.

Example 2

Shree Tech Ltd. enters into one contract with a customer for ₹12,00,000 to deliver standard software licence, install it, and provide help-desk support for 12 months. Installation is routine and other vendors can do it. The software works without modification. The help-desk service is the same each month and is satisfied over time. Identify the performance obligations.

Show the solution

List the promises: software licence, installation, and 12 months of help-desk support.
Licence: the customer can benefit from it, and installation does not change it, so it is distinct.
Installation: routine, available from other vendors, does not modify the software, so it is distinct.
Help-desk support: a distinct service. Each month is substantially the same, each is satisfied over time, and the same progress measure would apply. Both conditions of paragraph 23 are met, so the 12 months form a series treated as one obligation (22(b)).
Count: licence, installation, and the help-desk series.

Answer: Three performance obligations: the software licence, the installation, and the 12-month help-desk support (a series treated as one). The ₹12,00,000 is then allocated across these three.

Exam tips

In case-based MCQs, look for words showing control: who sets the price, who bears inventory risk, who directs use of the item. Use these to choose principal or agent.
Always say 'for each specified good or service' when discussing principal versus agent. Examiners reward this.
In written answers, state the test first (distinct, series conditions, control), then apply it to the facts, then conclude with the revenue amount or the count of obligations.
Cite paragraph numbers you are sure of, such as 22, 23, B34, B35, B36, but never at the cost of applying the facts.
If a question gives a contract modification, check whether the remaining goods are distinct (paragraph 21) before choosing a treatment.

Practice questions from Revenue from Contracts with Customers (Ind AS 115)

Identifying Performance Obligations in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Identifying Performance Obligations: frequently asked questions

What is a performance obligation under Ind AS 115?

It is a promise in a customer contract to transfer either a distinct good or service (or a distinct bundle), or a series of distinct goods or services that are substantially the same with the same pattern of transfer. Revenue is recognised when each obligation is satisfied.

How do I know if I am a principal or an agent?

Identify the specified good or service, then ask whether you control it before it is transferred to the customer. If you do, you are a principal and show gross revenue. If you only arrange for another party to provide it, you are an agent and show your fee or commission.

Does holding legal title make me a principal?

Not necessarily. If you obtain legal title only momentarily before it passes to the customer, you do not necessarily control the good. Control is the test, not title.

When is a series of services one performance obligation?

When the services are distinct and substantially the same, and both paragraph 23 conditions are met. Each service must be satisfied over time, and the same method must measure progress for each. Then you treat the series as a single obligation.

Can I be both principal and agent in one contract?

Yes. Paragraph B34 says that if a contract has more than one specified good or service, you could be a principal for some and an agent for others. You assess each one separately.