Question

A vacuum cleaner manufacturer sells a vacuum cleaner with a 90-day warranty included and a separate optional 3-year extended warranty. What are the distinct performance obligations in this sale contract? The vacuum cleaner, the 90-day warranty, and the 3-year warranty; i.e. all three are distinct obligations. The vacuum cleaner and the 90-day warranty comprise one obligation, and the 3-year warranty is another. The vacuum cleaner and the 3-year warranty comprise one obligation, and the 90-day warranty is another. The vacuum cleaner and both warranties are all together one obligation.

Answer 1

The answer is "The vacuum cleaner and the 90-day warranty comprise one obligation, and the 3-year warranty is another"

In assurance type warranty( 90 Day warranty in the question) does not create a separate Performance obligation and hence we don't allocate a transaction price to it. But we will estimate the obligation for Warranty and accrue the Cost when the sale takes place.

Since 3 Year Warranty is sold separately so it requires separate performance obligation.

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