B2W Flipbooks

Page | 13 Essentially, in the eyes of the owner/customer, if they are not receiving a stand-alone benefi t which is distinct in the context of the contract, then the transfer of a specifi c good/service under the contract is not a distinct promise or separate performance obligation on which to recognize revenue separately. Change orders, maintenance agreements, phases and/or multiple units of delivery will require additional analysis (as these may represent multiple promises and multiple deliverables). As a best practice, contractors should approach the analysis of determining if a good/service is distinct by analyzing what the benefi t is to the customer/owner, and if the benefi ts received from the change order work, maintenance, diff erent phases, or individual units stand on their own or if the benefi ts are highly related to the overall deliverable in the contract. Promises that are deemed to be immaterial in the context of the entire contract do not need to be evaluated under the standard as performance obligations. (Note: that this is not the same measurement as fi nancial statement materiality). However, a promise in the form of an option that provides the customer the ability to acquire additional goods or services from the contract should not be deemed immaterial. When assessing materiality of promises, both the quantitative and qualitative aspects should be considered in the context of the contract as a whole. The purpose of applying this concept in the identifi cation of performance obligations is to remove insignifi cant items and further clarify the primary value drivers in the contract. The transaction price associated with immaterial items should be allocated to the identifi ed performance obligations and recognized accordingly. Any related expense should be accrued in the same period in which the revenue is recognized. As in any circumstance where materiality is being applied, this step requires signifi cant judgment. As mentioned earlier, the standard explains that a single performance obligation can be "a series" of goods or services if certain requirements are met (See Page 19 for Series of Performance Obligation). When multiple performance obligations (distinct goods and services) are present within a contract, the standard requires the transaction price (overall contract value) be allocated to the separate performance obligations. An exception to this rule would be accounting for contract modifi cations and allocating variable considerations in accordance with 606-10-32-39(b). The transaction price should be allocated to each performance obligation based upon an estimate of stand-alone selling prices of the goods and services. Assessing Multiple Performance Obligations (continued) >

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