Question

the com 10 17.6 the con 10 m s ). The unlimited text messaging plan is priced at $15 per month ing for this plan available to all customers. Required: 1. How should Loud account for this contract modification? 2. Provide Loud's new monthly revenue recognition journal entry. 17.8 Identifying Performance Obligations Sanderson Construction Company provides a variety of construction 1173 services, ranging from general contracting services to specialized subcontracting services (e.g., electrical, plumo ing services). Sanderson entered into a contract to construct a building for a customer. The contract identities Sanderson as responsible for site preparation and all aspects of construction, including laying the foundation, fram ing, interior "rough-in" (e.g., plumbing, electrical, drywall), and exterior and interior finishing. Required: Identify Sanderson's performance obligations. t rading line of outdoor charcoal and

17-8

Answer 1

Sanderson's performance obligation would be a single performance obligation of construction of the building.

First of all let's understand what a performance obligation. Performance obligation refers to the promise of providing goods/services for some consideration. There can be a single or multiple performance obligations in a contract. IFRS 15 has listed down 2 conditions which must be satisfied for determining whether any goods/services are to be treated as a separate performance obligation :

1. Customer should be able to avail the benefit of such goods/services from resources readily available in the market. It means that where an entity is providing 2 different goods/services and if the customer is able to avail the benefit of one from readily available resources from the market, this condition is satisfied.

2. Goods/services being provided are separately identifiable in the contract.

Now, IFRS 15 lists down 3 conditions where if any one of them is satisfied, the goods/services will not be considered as separately identifiable :

a) Goods/services have been specifically customized for one another.

b) Goods/services are highly dependent on one another.

c) Goods/services are highly integrated among themselves and performance of one is dependent on the other.

In the current case, we are talking about a construction contract wherein every component ranging from plumbing services to site preparation and interior finishing are highly dependent and have a high level of integration among themselves. Therefore components of a construction contract as agreed by Sanderson in the current case cannot be said to be separately identifiable and hence these are not separate performance obligations which means that the whole construction contract offered by Sanderson is a single performance obligation.