Combination of contracts

Learning objectives

• Determine whether contracts entered into at or near the same time with the same customer (or related parties) must be combined: negotiated as a package, interdependent prices or a single performance obligation.L2, L3

Normative references

• IFRS 15 §17The entity combines two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) and accounts for them as a single contract if at least one criterion is met: negotiated as a package with a single commercial objective; the amount of one contract depends on the price or performance of the other; or the goods or services promised are a single performance obligation.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

8 questions

• Ravelin enters into a contract with Hôtels Brissac and another with a subsidiary of Hôtels Brissac on the same day. Since the two customers are different legal entities, these contracts can never be combined.L2
• Ostrevent signs two separately negotiated contracts with the same customer a few days apart. The price of the second depends on the performance of the first. These contracts must be accounted for as a single contract, even though they were not negotiated as a package.L2
• On 5 June 20X1, Éolys signs a contract with Venterre to deliver turbines. On 12 June 20X1, it signs a separate maintenance contract with Venterre, whose fee is reduced by 20% if the delivered turbines do not reach the guaranteed output. Nothing indicates a joint negotiation. Which combination criterion is met?L2
• Two contracts are entered into near the same time between Brocéliane and the same customer. Which of the following circumstances, each on its own, require them to be accounted for as a single contract?L2
• On 3 March 20X1, Corvalis signs a contract with Hôtels Brésine to supply furniture for 400,000. On 10 March 20X1, it signs a contract with Brésine Services, a subsidiary of Hôtels Brésine, to install that furniture for 50,000. The correspondence shows that the installation price was set well below its usual level because the furniture price had been accepted. Installation and furniture are distinct goods and services (case datum). How does Corvalis analyse these contracts?L3
• In January 20X1, Lauragais signs a contract with the customer Bastide to maintain its boilers. Eighteen months later, in July 20X2, it signs with Bastide a contract to supply new burners, negotiated separately at the usual rates. The price of each contract is unrelated to the other, and the burners and maintenance do not form a single performance obligation. The sales director proposes to combine the two contracts because the customer is the same. Which analysis should be retained?L3
• On the same day, Arnave signs two contracts with Pellegrue: the design of a specialised production line for 120,000 and its construction for 900,000. Each price corresponds to Arnave's usual rates. Arnave has concluded (documented judgement, case datum) that design and construction are so closely intertwined that they form a single performance obligation. How does it account for these contracts?L3
• On the same day, Mirepoix signs two contracts with the local authority Saint-Ybars, one to renovate a swimming pool, the other to landscape its surroundings. They were negotiated together to meet an overall budget and a single objective: reopening the site to the public. Mirepoix's management controller argues that the contracts are separate, since they are two separate documents, signed by different departments of the authority and invoiced separately. What do you think?L3