XYZ Ltd. enters into a contract with a customer to deliver a piece of custom-made machinery and provide installation services. The contract specifies that the machinery will be delivered first, followed by the installation. The customer cannot use the machinery until it has been installed.

According to AASB 15, how should XYZ Ltd. identify the performance obligations in this contract?

Question

XYZ Ltd. enters into a contract with a customer to deliver a piece of custom-made machinery and provide installation services. The contract specifies that the machinery will be delivered first, followed by the installation. The customer cannot use the machinery until it has been installed.

According to AASB 15, how should XYZ Ltd. identify the performance obligations in this contract?

BlackTom AI · Accepted Answer

Under AASB 15, goods or services are distinct only if they are both (a) capable of being distinct (the customer can benefit from the good or service on its own or together with readily available resources) and (b) distinct within the context of the contract (the promise is separable from other promises in the contract). If either criterion fails, the promised goods or services are combined and accounted for as a single performance obligation.

1) Relevant knowledge points and concepts
- AASB 15 requires identification of performance obligations by assessing whether promised goods or services are distinct (two-part test: capable of being distinct; distinct within the context). 
- Indicators that goods/services are not distinct include when the seller provides a significant service of integrating the good into a combined output and when one item significantly modifies or customizes another.

2) Step-by-step reasoning
- Step 1: Consider whether the machinery is capable of being distinct. The customer cannot use or benefit from the machinery until installation is complete, so the machinery alone does not provide standalone benefit.
- Step 2: Consider whether the machinery and installation are distinct within the contract. Installation is not merely incidental — it is required to render the machinery operational and likely customizes/integrates the machinery into a usable whole. This indicates the promises are highly interrelated and not separable.

3) Intermediate considerations (no numerical calculations required)
- The “capable of being distinct” test fails because the asset has no utility to the customer until installation.
- The “distinct within the context” test fails because installation significantly integrates and customizes the machinery, so the seller is transferring a combined output.

4) Why the correct answer is correct
- Because both distinctness criteria are not met, AASB 15 requires treating the machinery and installation as a single performance obligation. Revenue is recognized for the combined obligation when control of the integrated asset (machinery installed and operational) transfers.

5) Why other approaches are incorrect
- Treating machinery and installation as two separate obligations would require the machinery to be capable of standalone benefit or separable — which it is not here. Allocating price or recognizing revenue separately before installation would misstate when control actually transfers.

6) Conclusion
- Therefore, the machinery and installation should be considered one single performance obligation because the machinery cannot be used without installation, which matches the provided answer.

类似问题

During which step in the Order-to-Cash (O2C) process does an organization recognize revenue?

Which of the following is NOT one of the five steps in the revenue recognition process under AASB 15 Revenue from Contracts with Customers?

Which of the following is NOT a criteria to recognize revenue over time?

Performance Obligations are considered satisfied when:

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