Distinct goods or services

Learning objectives

• Determine whether a good or service is distinct: the customer can benefit from it on its own or together with readily available resources, and the promise is separately identifiable from other promises in the contract.L2, L3
• Assess the factors indicating that promises are not separately identifiable (significant integration service, significant modification or customisation, high interdependence).L3, L4

Normative references

• IFRS 15 §27A good or service is distinct if two criteria are met: the customer can benefit from it on its own or together with other readily available resources (it is capable of being distinct), and the promise to transfer it is separately identifiable from other promises in the contract (it is distinct in the context of the contract).
• IFRS 15 §28A customer can benefit from a good or service if it can use, consume, sell (for an amount greater than scrap value) or hold it in a way that generates economic benefits. A readily available resource is a good or service that is sold separately (by the entity or another party) or that the customer has already obtained from the entity or from other transactions; the fact that the entity regularly sells a good or service separately indicates that the customer can benefit from it.
• IFRS 15 §29The objective is to determine whether the promise is to transfer each good or service individually or a combined item for which they are inputs. Indicators that promises are not separately identifiable: a significant service of integrating the goods or services into a combined output; significant modification or customisation of one item by another; high interdependence or high interrelation of the goods or services, each being significantly affected by the other.
• IFRS 15 §30A good or service that is not distinct is combined with other promised goods or services until a bundle that is distinct is identified; this may result in a single performance obligation for the whole contract.

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

13 questions

• It is sufficient for the customer to be able to benefit from a good on its own for that good to be distinct under IFRS 15.L2
• Structa undertakes to design and build a water treatment plant. It provides the studies, the equipment and the works, and provides a significant service of integrating these items into a single facility requested by the customer. The promises to transfer the studies, the equipment and the works are not separately identifiable.L3
• When a promised good is not distinct, the entity combines it with other promised goods or services until it identifies a bundle that is distinct, which may result in a single performance obligation for the whole contract.L2
• Which two criteria must be met for a promised good or service to be distinct?L2
• What is the objective of assessing whether a promise to transfer a good or service is separately identifiable?L3
• Which of the following facts is not among the indicators, cited by IFRS 15, that promises are not separately identifiable?L3
• Which of the following statements about distinct goods or services are correct?L2
• Médisys undertakes to deliver and commission a complete imaging room: scanner, control software, technical furniture and cabling. The customer is buying a functioning room meeting a single set of specifications. Which of the following facts indicate that the promises are not separately identifiable?L4
• Pressor sells a standard packaging machine, which works without adaptation, together with its installation. The installation does not modify the machine, is simple and could be performed by other providers on the market. The customer can operate the machine as soon as it is installed. How many performance obligations does Pressor identify?L3
• Bâtisol is building a clinic for a customer. The contract covers design, supply of materials, structural works and finishing works; Bâtisol is responsible for the whole and integrates these items to deliver the clinic specified in the contract. The management controller proposes to identify one performance obligation per item. What conclusion do you retain?L3
• Softéam provides a distributor with existing warehouse management software and undertakes to customise it significantly: adding functionality and redesigning the interfaces so that it controls the customer's own automated equipment. Without this customisation, the software does not meet the use provided for in the contract. The contract also provides for acceptance tests performed by Softéam. What conclusion do you retain?L4
• Agrimek enters into a contract with a farm that includes: the supply of pumps, moisture sensors and control software; the design of an irrigation network specific to the farm; the integration and calibration of the whole by Agrimek to deliver an operational precision irrigation system; and a standard 3-year maintenance service, also offered by other providers and not needed for the system to work. According to the case data, the customer can benefit from the maintenance together with readily available resources. Write a memo identifying the performance obligations in the contract.L4
• Imprimeo sells a communications agency a standard digital press and a 2-day training course on its routine use. The press works without the training; the training does not modify the press, and other organisations offer equivalent training. According to the case data, the customer can benefit from each item on its own or together with readily available resources. The agency's administrative director argues that there is only one performance obligation, as the training cannot be separated from the press. Write a reasoned memo.L3