Question

Classification: Does the transaction involving the school district's participation in the National School Lunch Program contain a performance obligation or not? What is the basis for your answer? Please see below.

The example involves a public school cafeteria serving lunch. Some students pay full price for their food, but others receive lunch for a reduced price or for free under the federal National School Lunch Program. For simplicity's sake, let's assume the school cafeteria meets all nutritional requirements to qualify for National School Lunch Program - all it needs to do now is serve the lunches. The grant is expenditure driven - when the school district proves the reduced price and free meals have been provided, the federal government owes it a grant payment. (Again, ignore the part of the program that involves school districts receiving free food products from the USDA to use in the meals.)

Answer 1

Yes, transaction involving the school district's participation in the National School Lunch Program contain a performance obligation. It is apparent from the statement " The grant is expenditure driven - when the school district proves the reduced price and free meals have been provided, the federal government owes it a grant payment ". Here the grants are baed on performance obligation. The performance obligation is to serve the free meals and to serve food at reduced prices, which in turn will provide the right to school to claim the expenditure from federal government. If school do not perform this performance obligation then it will not be eligible to claim from the federal government. So, school just need to meet above performance obligation to claim the expenses.