Question

If the performance obligation is not highly dependent on, or interrelated with, other promises in the contract, then each performance obligation should be accounted for separately.True/False

Answer 1

Answer:

Yes, it is true that If the performance obligation is not highly dependent on, or interrelated with, other promises in the contract, then each performance obligation should be accounted for separately.

Explanation:

A performance obligation exists when an entity provides a distinct product or service.

It is a promise to provide a “distinct” good or service to a customer.

When there are multiple promises in a contract, companies will need to determine whether those goods or services are distinct, and therefore separate performance obligations for to avoid ambiguity.

Performance obligations in each contract can be identified by a company by first considering whether or not the goods or services are distinct.

If distinct, a customer can benefit from the good or service on its own because the good or service is separable from the other goods or services in a contract.