RaR eBook: What Are Performance Obligations and How Do You Identify Them?
According to ASU 2014-09, a performance obligation is a promise in a contract with a customer to transfer a good or service to the customer. If an entity promises in a contract to transfer more than one good or service to the customer, the entity should account for each promised good or service as a performance obligation only if it is (1) distinct or (2) a series of distinct goods or services that are substantially the same and have the same pattern of transfer.
A good or service is distinct if both of the following criteria are met:
Capable of being distinct: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer.
Distinct within the context of the contract: The promise to transfer the good or service is separately identifiable from other promises in the contract.
A good or service that is not distinct should be combined with other promised goods or services until the entity identifies a bundle of goods or services that is distinct.
Some of the more common considerations that are key in defining a Performance Obligation include;
This provide a deeper look at each of these considerations, including some examples to show how they would impact the determination of a Performance Obligation.
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