An entity licenses customer relationship management software to a customer. In addition, the entity promises to...

An entity licenses customer relationship management software to a customer. In addition, the entity promises to provide consulting services to significantly customize the software to the customer’s information technology environment for total consideration of $ 600,000 Are the software and consulting services on performance obligation or two?

Expert Solution

There are some indications that good/service is not distinct. These are mentioned as below:-

i) Goods/Services are highly interrelated.

ii) Entity must provide a significant service to integrate the goods or services into the combined item(s) for the customer.

iii) The goods or services are significantly modified or customized in order to fulfill the contract.

In the given case an entity licenses customer relationship management software to a customer. In addition, the entity promises to provide consulting services to significantly customize the software to the customer’s information technology environment for total consideration of $ 600,000. Thus there is two indications present that good/service is not distinct which are as follows:-

a) Entity must provide a significant service to integrate the goods or services into the combined item(s) for the customer.

b) The goods or services are significantly customized in order to fulfill the contract.

Hence there is only one performance obligation. Therefore the software and consulting services are one performance obligation.

ekkarill92 answered 2 years ago

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