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Page | 7 and criteria for application are diff erent between the old and new standards. The prior standard's criteria were almost impossible to achieve whereas the new standard's criteria for combining will be met frequently. The decision to combine contracts occurs before the evaluation of performance obligations. CONTRACT MODIFICATIONS (ASC 606-10-25-10 through 25-13) A contract modifi cation is a change in scope, price or both. The modifi cation exists when the parties to a contract approve a modifi cation that either creates new or changes the existing enforceable rights and obligations of the parties to the contract. This can be approved in writing, by oral agreement, or implied by customary business practices. If the parties have not approved the modifi cation, an entity should continue to apply the guidance in ASC 606 to the existing contract until the modifi cation is approved. Even if it's not approved, a modifi cation may still be accounted for even though a dispute exists regarding the scope and/or price. The entity should consider all relevant facts and circumstances, including the terms of the contract and other evidence, in determining whether the rights and obligations regarding the modifi cation are enforceable. If the parties to a contract have approved a change in the scope of the contract but have not yet determined the corresponding change in price, the entity should estimate the change to the transaction price arising from the modifi cation in accordance with the guidance on estimating variable consideration and on constraining estimates of variable consideration. An entity should account for a modifi cation as a separate contract if: 1. The scope of the contract increases because of the addition of promised goods or services that are distinct; and 2. The price of the contract increases by an amount of consideration that refl ects the entity's Identifying Contracts with Customers (continued) > standalone selling prices of the additional promised goods or services and appropriate adjustments to that price to refl ect the circumstances. a. For example, an entity adjusts the standalone selling price of an additional good or service for a discount the customer receives because the entity does not incur additional general conditions that it would incur when selling a similar good or service to a new customer. If a contract modifi cation is not accounted for as a separate contract, an entity should account for the promised goods or services not yet transferred at the date of the modifi cation in whichever of the following ways is applicable: 1. If the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modifi cation, the entity should account for the contract modifi cation as if it were a termination of the existing contract and the creation of a new contract. The amount of consideration to be allocated to the remaining performance obligations (or to the remaining distinct goods or services in a single performance obligation) is the sum of: a. The consideration promised by the customer (including amounts already received from the customer) that was included in the estimate of the transaction price and that had not been recognized as revenue; and b. The consideration promised as part of the contract modifi cation. 2. If the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfi ed at the date of the modifi cation. The

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