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Page | 28 Uninstalled Materials (continued) > ASC 606 applies the four conditions described above for uninstalled materials where a cost incurred is not proportionate to an entity's progress in satisfying its performance obligation in the procurement of elevators. In this example, the entity is not involved in designing or manufacturing the elevators and it has assessed that including the costs to procure the elevators in the measure of progress would overstate the extent of the entity's performance: a. In November 20X2, an entity contracts with a customer to refurbish a three-story building and install new elevators for total consideration of $5 Million. The promised refurbishment service, including the installation of elevators, is a single performance obligation satisfi ed over time. Total expected costs are $4 Million, including $1.5 Million for the elevators. The entity determines that it acts as a principal in accordance with ASC 606-10-55-36 through 55-40 because it obtains control of the elevators before they are transferred to the customer. b. A summary of the transaction price and expected costs is as follows: Transaction price $ 5 Million Expected costs: Elevators $ 1.5 Million Other costs $ 2.5 Million Total expected costs $ 4 Million c. The entity uses an input method based on costs incurred to measure its progress toward complete satisfaction of the performance obligation. The entity assesses whether the costs incurred to procure the elevators are proportionate to the entity's progress in satisfying the performance obligation in accordance with ASC 606-10-55-21. The customer obtains control of the elevators when they are delivered to the site in December 20X2, although the elevators will not be installed until June 20X3. The costs to procure the elevators ($1.5 Million) are signifi cant relative to the total expected costs to completely satisfy the performance obligation ($4 Million). The entity is not involved in designing or manufacturing the elevators. d. The entity concludes that including the costs to procure the elevators in the measure of progress would overstate the extent of the entity's performance. Consequently, in accordance with ASC 606-10-55-21, the entity adjusts its measure of progress to exclude the costs to procure the elevators from the measure of costs incurred and from the transaction price. The entity recognizes revenue for the transfer of the elevators in an amount equal to the costs to procure the elevators (that is, at a zero margin). EXAMPLE: REFURBISH BUILDING, NO DESIGN OR MANUFACTURING

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