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 considered 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.
The new eBook from Bramasol provides an overview of the Performance Obligation concept, along with specific information on the types of POBs and how to identify them for revenue recognition purposes.
Detailed sections of the eBook focus on the following:
- Principal vs. Agent
- Warranties
- Non-refundable Upfront Fees
- Customer Options for Additional Goods or Services
- Stand-Ready Obligations
Understanding these issues will be critical for a successful transiton to the new revenue recognition standards. Click below to download the ebook.
