Identifying performance obligations and series

Learning objectives

• Identify the promises in a contract, including implicit promises created by customary business practices, and exclude set-up activities that do not transfer anything to the customer.L1, L2
• Explain that a series of distinct goods or services that are substantially the same and have the same pattern of transfer is a single performance obligation.L2, L3

Normative references

• IFRS 15 §22At contract inception, the entity assesses the goods or services promised and identifies as a performance obligation each promise to transfer either a distinct good or service (or bundle), or a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.
• IFRS 15 §23A series of distinct goods or services has the same pattern of transfer when each item in the series would meet the criteria for an obligation satisfied over time and the same method of measuring progress would apply to each.
• IFRS 15The promises in a contract are not limited to those explicitly stated in it: they include promises implied by customary business practices, published policies or specific statements of the entity if, at the time of entering into the contract, they create a valid expectation on the part of the customer that a good or service will be transferred.
• IFRS 15 §25Performance obligations do not include activities that the entity must undertake to fulfil a contract that do not transfer a good or service to the customer, for example administrative tasks to set up the contract.
• IFRS 15 §26Depending on the contract, promised goods or services may include: the sale of goods produced or purchased, the resale as principal of rights to goods or services (for example, a ticket), the performance of contractually agreed tasks, a service of standing ready to provide goods or services or of making them available as and when the customer decides (for example, software updates provided when and if available), arranging for another party to provide them (agent), granting rights to future goods or services that the customer can resell, constructing or developing an asset on behalf of the customer, granting licences and granting options to purchase additional goods or services when they provide a material right.

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

16 questions

• In what order does the five-step teaching approach apply the core principle of IFRS 15?L1
• Netalys provides a customer with a weekly office cleaning service for {initial_term} years, for EUR {annual_fee} per year. Each week of service is distinct and together they form a series treated as a single performance obligation. After {years_elapsed} years of performance, the customer agrees to extend the contract by {extension_term} years for EUR {extension_fee} per year, whereas the stand-alone selling price of the service is then EUR {ssp_annual} per year. The service is provided evenly. Compute the annual revenue that Netalys will recognise for each of the remaining years.L3
• The promises to be analysed to identify performance obligations are limited to those explicitly written in the contract.L1
• Activities that an entity must undertake to fulfil a contract without transferring a good or service to the customer, such as the internal opening of the customer's file, are not performance obligations.L1
• Gardalis undertakes to provide daily security guarding of a logistics site for 3 years. Each day of service is distinct and substantially the same as the others; according to the case data, each day would be an obligation satisfied over time, measured using the same method. Gardalis identifies a single performance obligation, not one obligation per day.L2
• Pressafil delivers an identical batch of mechanical parts every month for 2 years; each batch is distinct and its control is transferred to the customer on delivery, at a point in time. These deliveries have the same pattern of transfer under IFRS 15 and therefore form a series that is a single performance obligation.L3
• When does the entity identify the performance obligations in a contract?L1
• Logivia sells accounting software. The signed contract does not mention updates, but the policy published by Logivia on its website, known to its customers at the time of purchase, states that regulatory updates will be provided free of charge for 2 years as soon as they become available. How does Logivia treat these updates when identifying its performance obligations?L2
• Paylane enters into a payroll outsourcing contract. Which of the following activities transfers no service to the customer and is therefore not a performance obligation?L2
• Sécurio provides continuous remote monitoring of a customer's warehouses for 2 years, invoiced monthly. Each day of monitoring is distinct and substantially the same; according to the case data, each day would be an obligation satisfied over time whose progress would be measured based on time elapsed. How many performance obligations does Sécurio identify?L3
• Which of the following may be goods or services promised to a customer in a contract?L1
• Which of the following sources may create an implied promise to be taken into account in a contract with a customer?L2
• Which of the following conditions must be met for promised goods or services to be treated as a series that is a single performance obligation?L3
• The Autovia dealership sells new vehicles. For several years, it has offered all its buyers free servicing of the vehicle for 2 years; this practice is known to customers and highlighted by its sales staff, but the order form says nothing about it. How does Autovia analyse the promises in a sales contract?L2
• Cloudélis provides a continuously available data hosting service for 3 years, invoiced quarterly. Each month of service is distinct and substantially the same; according to the case data, each month would be an obligation satisfied over time, measured based on time elapsed. The accountant proposes to identify 12 quarterly performance obligations. What conclusion do you retain?L3
• The operator Connectis signs a 24-month internet access contract. On signing, it creates the customer's account and assigns it an identifier in its internal systems, without transferring anything to the customer. Thereafter, each month of access is distinct and substantially the same; according to the case data, each month would be satisfied over time using the same measurement method. Which performance obligations does Connectis identify?L3