![]() Control is considered to be transferred when the customer has the ability to direct the use of and receive benefit from the good or service. Revenue will be recognized as the performance obligations are completed and control of the good or service is transferred to the customer. Step 5: Recognize Revenue When or As Performance Obligations Are Satisfied Combine the stand-alone selling prices and allocate the transaction price proportionately to each performance obligation based on their respective standalone prices. If a stand-alone selling price is not directly observable, it must be estimated. The best way to do this is to compile each performance obligation’s stand-alone price if it were sold separately by the entity. If there are multiple performance obligations, the transaction price must be allocated to each performance obligation on a relative standalone basis. Step 4: Allocate the Transaction Price to the Performance Obligations Amounts Payable to Customer-In the contract, if anything is owed to the customer, the transaction price should be reduced by that amount.Non-Cash Considerations-Items provided should be measured at fair value of what is received.Financing Component-Time value of money consideration if there is a financing component.Variable Consideration-Estimated amount received after rebates, discounts, refunds, etc.When determining the price, there are a few things to consider and their effects: ![]() There are two distinct performance obligations-the sale of the equipment and the year of maintenance. If they can, that is probably a separate performance obligation.įor example, a customer enters into an agreement to buy equipment with a year of free maintenance. Another way to think about it is to consider if the customer can use or benefit from the good or service on its own. This step is one of the more significant rules because a contract can have more than one performance obligation, and each obligation will need to be specified. This step identifies what’s being delivered or provided to the customer. Step 2: Identify the Performance Obligations
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