ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue
Zeta Co sells industrial machinery and, in the same contract, agrees to install it. The installation is routine, can be performed by other contractors, and does not modify the machinery. Under IFRS 15, how should Zeta account for the promises?
The machinery and installation are two separate performance obligations. Each is capable of being distinct because the customer can benefit from them separately and installation is routine, not modifying the machine. Bundling in one contract does not combine them.
- AAs a single performance obligation because both promises are in one contract
- BAs two performance obligations, because the machinery and installation are distinctCorrect
- CAs one performance obligation, because installation is always integral to machinery
- DAs a single obligation, recognised when the contract is signed
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 in the contract. Installation is routine, available from others, and does not significantly modify the machinery, so both criteria are met. Being in one contract does not make promises a single obligation.
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