Revenue Recognition—Case Study-1
On 29 February, Vendor enters into a contract with a customer to provide, deliver and install manufacturing equipment for 15,000 due on delivery.
Vendor delivers the equipment on 31 March and installs it during April. Title to the equipment passes to the customer at delivery.
Vendor separately sells the equipment (inclusive of the delivery service) and installation service for 14,000 and 2,000 respectively.
Vendor does not sell delivery services separately from equipment. The allocation of the transaction price of 15,000 would be as follows:
Stand-alone Allocation of Measurement of
selling price discount Performance obligation
(A) (B) (A) - (B)
Machine and deliver 14,000 875 (a) 13,125
Installation 2,000 125 (b) 1,875
Total 16,000 1,000 15,000
(a)1,000 × (14,000 ÷ 16,000)
(b)1,000 × (2,000 ÷ 16,000)
Vendor satisfies the equipment and delivery services obligation on 31 March when the equipment is transferred to the customer.
Vendor satisfies the installation service obligation in April as installation progresses.
Therefore, Vendor’s net contract position and revenue recognition are as follows:
Net contract position at end of month Revenue recognition during month
February --- ----
March 1,875 (a) 13,125
April ---- 1,875
(a)Because the customer paid on delivery of the equipment, there are no remaining rights at 31March.
Therefore, Vendor’s net contract position at 31 March is a contract liability of 1,875 (the amount allocated to the remaining performance obligation).
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