An accounting software producer signs an agreement with a customer. The software producer is to provide weekly accounting software services over a period of one year. The contractor has a right to receive payment for the work completed to date.
Based on IFRS 15, does the contract fulfill the conditions for performance obligation satisfied over time?
See the suggested solution to practice activity 13.30 here.
Suggested solution to practice activity 13.30
According to IFRS 15, the following questions can determine whether the performance obligation is satisfied over time:
i. Does the customer simultaneously receive and consume the benefits provided by the entity’s performance as the entity performs?
The answer to question (i) is yes. This is because the customer receives the project management services and consumes the benefits of project management services as the entity performs more project management services over time.
ii.Does the entity’s performance create or enhance an asset (for example, work-in-progress) that the customer controls as the asset is created or enhanced?
The answer to question (ii) is yes. This is because the entity’s performance of project management services creates or enhances an asset that the customer controls as it is created or enhanced.
iii. Does the reporting entity’s performance not create an asset that can be used in another manner by the entity? Does the reporting entity have an enforceable right to be paid for obligations completely performed to date?
The answer to both questions in (iii) is yes. This is because the entity’s performance does not create an asset with an alternative use. Also, the Accounting Software producer has an enforceable right to payment for work completed to date.
Therefore, it can be concluded that the performance obligation is satisfied over time because one of the above conditions (i), (ii) and (iii) are positive.
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