Question

Can anyone let me know the answers for below? Thank you!

54. What is multiple arrangement in revenue recognition?

a. A sales contract that has one performance obligation

b. A sales contract that has multiple performance obligation

c. A sales contract that are entered within 30 days of the other contract

d. A sales contract that has no payment terms

Answer 1

54. What is multiple arrangement in revenue recognition?

Ans. b. A sales contract that has multiple performance obligation

Explanation: According to ASC 606 “Revenue from Contracts with Customers” of FASB, entity should recognize the revenue on the contract with the customers to provide goods and services. For recognizing revenue, they should identify the performance obligations in the contract to allocate the transaction price.

Performance obligations means the promise given by the entity to the customers for providing goods and services. For example, a vendor made a contract with the customer to sell a Refrigerator. In this case, the performance obligation of the vendor is to deliver the Refrigerator in the hands of customer at a predetermined consideration price.

There are some contracts which has multiple performance obligations with a customer. For example, a vendor made a contract with a customer to sell a Refrigerator with installation service and 1-year maintenance service. In this case, there are multiple performance obligations in the contract which are 1) to sell the refrigerator, 2) to install the refrigerator and 3) 1-year maintenance service. So, while recognizing revenue, we will consider these multiple arrangements or multiple performances for the allocation of transaction price.