QUESTION 8 Illustration 8 An entity provides broadband services to its customers along with voice call service. Customer buys modem from the entity. However, customer can also get the connection from the entity and modem from any other vendor. The installation activity requires limited effort and the cost involved is almost insignificant. It has various plans where it provides either broadband services or voice call services or both. Are the performance obligations under the contract distinct?

Solution

Entity promises to customer to provide

❖     Broadband Service

❖     Voice Call services

❖     Modem

Entity’s promise to provide goods and services is distinct if

❖     customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and

❖     entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract

For broadband and voice-call services

❖     Broadband and voice services are separately identifiable from other promises as company has various plans to provide the two services separately. These two services are not dependent or interrelated. Also, the customer can benefit on its own from the services received.

For sale of modem

❖     Customer can either buy product from entity or third party. No significant customization or modification is required for selling product.

Based on the evaluation we can say that there are three separate performance obligation:

❖     Broadband Service

❖     Voice Call services

❖     Modem

 


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