ACCA Applied Skills · Financial Reporting · Revenue
Kestrel Co sells a machine to a customer for $90,000 and, in the same contract, agrees to install it. The installation is simple, requires no specialised skills, and could be done by several other firms. The machine is useful to the customer on its own without Kestrel's installation. Under IFRS 15, how should Kestrel treat the machine and the installation?
The machine and installation are two separate performance obligations. The customer can benefit from the machine on its own, other firms can do the simple installation, and the promises are separately identifiable. Being sold in one contract does not combine them under IFRS 15.
- AAs two separate performance obligations, because the machine is distinct and the installation is distinctCorrect
- BAs a single performance obligation, because both are sold in one contract
- CAs a single performance obligation, because installation is always integral to the machine
- DAs one performance obligation only if the price is not separately stated
Explanation
A good or service is distinct if the customer can benefit from it on its own or with readily available resources, and it is separately identifiable within the contract. The machine works without Kestrel's installation, and others can install it, so the two are distinct. Being in one contract does not make them a single obligation.
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