Question

DigiTech, Inc. licenses enterprise resource planning (ERP) software to Big Cereal Company. In addition to providing the software, DigiTech contracts to extensively customize the software according to Big Cereal's specifications, for total consideration of $500,000. The software is not usable until the customization is completed by DigiTech. How many performance obligations does this contract include? Explain the rationale of your answer.

Answer 1

The Contract has only one Performance Obligation ie Licensing and cutomization of ERP.

As per IFRS 15, goods or services are treated as distinct if Both the following conditions are satisfied-

• the customer can benefit from the good or services on its own or in conjunction with other readily available resources; and
• the entity’s promise to transfer the good or service to the customer is separately idenitifable from other promises in the contract.

In the above case, The first condition is not satisfied as the software is not usable untill customization is done by Digitech.