Distinct goods or services
26 Depending on the contract, promised goods or services may include, but are not
limited to, the following:
(a) sale of goods produced by an entity (for example, inventory of a
manufacturer);
(b) resale of goods purchased by an entity (for example, merchandise of a
retailer);
(c) resale of rights to goods or services purchased by an entity (for example,
a ticket resold by an entity acting as a principal, as described in
paragraphs B34–B38);
(d) performing a contractually agreed-upon task (or tasks) for a customer;
(e) providing a service of standing ready to provide goods or services (for
example, unspecified updates to software that are provided on a
when-and-if-available basis) or of making goods or services available for a
customer to use as and when the customer decides;
(f) providing a service of arranging for another party to transfer goods or
services to a customer (for example, acting as an agent of another party,
as described in paragraphs B34–B38);
(g) granting rights to goods or services to be provided in the future that a
customer can resell or provide to its customer (for example, an entity
selling a product to a retailer promises to transfer an additional good or
service to an individual who purchases the product from the retailer);
(h) constructing, manufacturing or developing an asset on behalf of a
customer;
(i) granting licences (see paragraphs B52–B63); and
(j) granting options to purchase additional goods or services (when those
options provide a customer with a material right, as described in
paragraphs B39–B43).
27 A good or service that is promised to a customer is distinct if both of the
following criteria are met:
(a) the customer can benefit from the good or service either on its own or
together with other resources that are readily available to the customer
(ie the good or service is capable of being distinct); and
(b) the entity’s promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract (ie the good
or service is distinct within the context of the contract).
28 A customer can benefit from a good or service in accordance with
paragraph 27(a) if the good or service could be used, consumed, sold for an
amount that is greater than scrap value or otherwise held in a way that
generates economic benefits. For some goods or services, a customer may be
able to benefit from a good or service on its own. For other goods or services, a
customer may be able to benefit from the good or service only in conjunction
with other readily available resources. A readily available resource is a good or
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service that is sold separately (by the entity or another entity) or a resource that
the customer has already obtained from the entity (including goods or services
that the entity will have already transferred to the customer under the contract)
or from other transactions or events. Various factors may provide evidence that
the customer can benefit from a good or service either on its own or in
conjunction with other readily available resources. For example, the fact that
the entity regularly sells a good or service separately would indicate that a
customer can benefit from the good or service on its own or with other readily
available resources.
29 Factors that indicate that an entity’s promise to transfer a good or service to a
customer is separately identifiable (in accordance with paragraph 27(b)) include,
but are not limited to, the following:
(a) the entity does not provide a significant service of integrating the good
or service with other goods or services promised in the contract into a
bundle of goods or services that represent the combined output for
which the customer has contracted. In other words, the entity is not
using the good or service as an input to produce or deliver the combined
output specified by the customer.
(b) the good or service does not significantly modify or customise another
good or service promised in the contract.
(c) the good or service is not highly dependent on, or highly interrelated
with, other goods or services promised in the contract. For example, the
fact that a customer could decide to not purchase the good or service
without significantly affecting the other promised goods or services in
the contract might indicate that the good or service is not highly
dependent on, or highly interrelated with, those other promised goods
or services.
30 If a promised good or service is not distinct, an entity shall combine that good or
service with other promised goods or services until it identifies a bundle of
goods or services that is distinct. In some cases, that would result in the entity
accounting for all the goods or services promised in a contract as a single
performance obligation.
Satisfaction of performance obligations
31 An entity shall recognise revenue when (or as) the entity satisfies a
performance obligation by transferring a promised good or service (ie an
asset) to a customer. An asset is transferred when (or as) the customer
obtains control of that asset.
32 For each performance obligation identified in accordance with
paragraphs 22–30, an entity shall determine at contract inception whether it
satisfies the performance obligation over time (in accordance with
paragraphs 35–37) or satisfies the performance obligation at a point in time (in
accordance with paragraph 38). If an entity does not satisfy a performance
obligation over time, the performance obligation is satisfied at a point in time.
33 Goods and services are assets, even if only momentarily, when they are received
and used (as in the case of many services). Control of an asset refers to the ability
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to direct the use of, and obtain substantially all of the remaining benefits from,
the asset[G]. Control includes the ability to prevent other entities from directing
the use of, and obtaining the benefits from, an asset. The benefits of an asset are
the potential cash flows (inflows or savings in outflows) that can be obtained
directly or indirectly in many ways, such as by:
(a) using the asset to produce goods or provide services (including public
services);
(b) using the asset to enhance the value of other assets;
(c) using the asset to settle liabilities or reduce expenses;
(d) selling or exchanging the asset;
(e) pledging the asset to secure a loan; and
(f) holding the asset.
34 When evaluating whether a customer obtains control of an asset, an entity shall
consider any agreement to repurchase the asset (see paragraphs B64–B76).
Performance obligations satisfied over time
35 An entity transfers control of a good or service over time and, therefore, satisfies
a performance obligation and recognises revenue over time, if one of the
following criteria is met:
(a) the customer simultaneously receives and consumes the benefits
provided by the entity’s performance as the entity performs (see
paragraphs B3–B4);
(b) the entity’s performance creates or enhances an asset (for example, work
in progress) that the customer controls as the asset is created or
enhanced (see paragraph B5); or
(c) the entity’s performance does not create an asset with an alternative use
to the entity (see paragraph 36) and the entity has an enforceable right to
payment for performance completed to date (see paragraph 37).
36 An asset created by an entity’s performance does not have an alternative use to
an entity if the entity is either restricted contractually from readily directing the
asset for another use during the creation or enhancement of that asset or
limited practically from readily directing the asset in its completed state for
another use. The assessment of whether an asset has an alternative use to the
entity is made at contract inception. After contract inception, an entity shall
not update the assessment of the alternative use of an asset unless the parties to
the contract approve a contract modification that substantively changes the
performance obligation. Paragraphs B6–B8 provide guidance for assessing
whether an asset has an alternative use to an entity.
37 An entity shall consider the terms of the contract, as well as any laws that apply
to the contract, when evaluating whether it has an enforceable right to payment
for performance completed to date in accordance with paragraph 35(c). The
right to payment for performance completed to date does not need to be for a
fixed amount. However, at all times throughout the duration of the contract,
the entity must be entitled to an amount that at least compensates the entity for
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performance completed to date if the contract is terminated by the customer or
another party for reasons other than the entity’s failure to perform as promised.
Paragraphs B9–B13 provide guidance for assessing the existence and
enforceability of a right to payment and whether an entity’s right to payment
would entitle the entity to be paid for its performance completed to date.
Performance obligations satisfied at a point in time
38 If a performance obligation is not satisfied over time in accordance with
paragraphs 35–37, an entity satisfies the performance obligation at a point in
time. To determine the point in time at which a customer obtains control of a
promised asset and the entity satisfies a performance obligation, the entity shall
consider the requirements for control in paragraphs 31–34. In addition, an
entity shall consider indicators of the transfer of control, which include, but are
not limited to, the following:
(a) The entity has a present right to payment for the asset—if a customer is
presently obliged to pay for an asset, then that may indicate that the
customer has obtained the ability to direct the use of, and obtain
substantially all of the remaining benefits from, the asset in exchange.
(b) The customer has legal title to the asset—legal title may indicate which
party to a