- 5 Marks
Question
Togbah LTD (Togbah), a software developer, enters into a contract with a customer to transfer the following:
- Software licence,
- Installation service (includes changing the web screen for each user),
- Software updates, and
- Technical support for two years.
Togbah sells the above separately. The installation service is routinely performed by other entities and does not significantly modify the software. The software remains functional without the updates and the technical support.
Required:
Explain whether the goods or services promised to the customer are distinct in terms of IFRS 15: Revenue from Contracts with Customers.
Answer
- The software is delivered before the other goods or services and remains functional without the updates and the technical support. Therefore, the entity concludes that the customer can benefit from each of the goods and services either on their own or together with the other goods and services that are readily available.
- The promise to transfer each good and service to the customer is separately identifiable from each other.
- In particular, the installation service does not significantly modify or customize the software itself and, as such, the software and the installation service are separate outputs promised by the entity instead of inputs used to produce a combined output.
- Based on the assessment, four performance obligations in the contract have been identified for all four of the above goods or services.
- Topic: Financial Reporting Standards and Their Applications
- Series: Nov 2024
- Uploader: Salamat Hamid