Long-term supply contracts

To apply IFRS 15, automotive parts suppliers (APSs) will need to change the way they evaluate long-term supply contracts. APSs need to use significant judgement when they identify separate performance obligations (i.e., units of account), which may be different from those identified under IAS 18.

Tooling equipment

APSs commonly enter into long-term arrangements with OEMs to provide specific parts, such as seat belts or steering wheels. An arrangement typically includes the construction for the tooling, which is required to … Continue reading

Identify Software industry obligations – Combined services

This is an example in a small series for illustrating the concepts in What is a good or service that is distinct?

Scenario C                                            >>>>> See scenario A here, and scenario B here

The vendor’s contract with its customer is the same as in scenario B, except that:

Identify Software industry obligations – Customisation

This is an example in a small series for illustrating the concepts in What is a good or service that is distinct?

Scenario B                                            >>>>> See scenario A here, and scenario C here

The vendor’s contract with its customer is the same as in scenario A, except that as part of the installation service the software is to … Continue reading

Identify Software industry obligations – Distinct service

This is an example in a small series for illustrating the concepts in What is a good or service that is distinct?

Scenario A                                            >>>>> See scenario B here, and scenario C here

A vendor enters into a contract with a customer to supply a license for a standard ‘off the shelf’ software package, install the software, and … Continue reading

What is a good or service that is distinct?

An important item to look at is whether a ‘promise to’ in a contract (established to be a contract for accounting purposes in Step 1) is a distinct good or service, and as a result thereof is a performance obligation.

Example:

Entity XYZ has contractually agreed to build a fence at the home of a customer. From an operational perspective, there are likely three stages to the contract:

  • Purchase the timber, nails, concrete and other required building
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What Does a Performance Obligation Look Like?

Contracts with customers generally state explicitly the goods or services that an entity promises to transfer to a customer. However, promised goods or services in a contract may also be implied by an entity’s customary business practices, published policies, or specific statements if those promises create a reasonable expectation of the customer that the entity will transfer a good or service to the customer. It should be noted that entities are not required to assess whether promised goods or … Continue reading