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Page | 19 ASC 606-10-25-14 indicates that a contractor should assess goods or services promised in a contract and identify as performance obligations each promise to transfer to the customer either: a. a good or service (or bundle of goods or services) that is distinct, or b. a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. ASC 606-10-25-15 indicates that a series of distinct goods or services has the same pattern of transfer to the customer if both the following criteria are met: a. Each distinct good or service in the series that the entity promises to transfer to the customer would meet the criteria in ASC 606-10-25- 27 to be a performance obligation satisfi ed over time. b. In accordance with paragraphs 31-32 of ASC 606-10-25, the same method would be used to measure the entity's progress toward complete satisfaction of the performance obligation to transfer each distinct good or service in the series to the customer. In the Engineering and Construction industry, an example of a contract that included a series of goods or services to be provided to the customer may be a landscaping contractor who has a contract to install and maintain a lawn, other landscaping and gardens at a university. The maintenance portion includes provisions to maintain the landscaping and provide snow removal and mowing over a three-year term. The contractor would need to assess the distinct performance obligations which existed. When evaluating the maintenance portion of the contract, they would need to assess whether the maintenance services were not highly integrated with or highly dependent on the construction services to determine if the maintenance services were a separate performance obligation. Additionally, assuming they determined a separate performance obligation existed, they would need to determine if the maintenance portion of the contract included one or more performance obligations and if any of those performance obligations was a series of goods and services with the same pattern of delivery. Depending on the terms of the contract, the garden maintenance may not be a series of distinct goods and services with the same pattern of transfer, but it would be highly likely the mowing services would be a series of services that are substantially the same with the same pattern of transfer to the customer. FASB/IASB TRG AGENDA REF. 16 Stand-Ready Performance Obligations discusses that a promise to provide periodic maintenance, when and if needed, on a customer's equipment after a pre-established amount of usage, may be considered a "stand-ready" obligation. ASU No. 2014-09 (BC 160) notes that promises to "stand-ready" are evaluated based on increments of time (that is, the act of standing ready) as opposed to the underlying activities of providing goods and services. FASB/IASB TRG Agenda Ref 39 - Application of the Series Provision and Allocation of Variable Consideration discusses that if the contractor determines that the nature of the arrangement is a stand-ready obligation, the maintenance arrangement will generally be accounted for as a series in accordance with ASC 606-10-25-14(b). Therefore, if the contractor concludes that the snow removal services are considered a "stand-ready" obligation, the contractor may also determine that snow removal services should be accounted for in accordance with the series guidance. Series of Performance Obligations >

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