QUESTION 12 Illustration 12 An entity, a software developer, enters into a contract with a customer to transfer a software license, perform an installation service and provide unspecified software updates and technical support (online and telephone) for a two-year period. The entity sells the license, installation service and technical support separately. The installation service includes changing the web screen for each type of user (for example, marketing, inventory management and information technology). The installation service is routinely performed by other entities and therefore it does not significantly modify the software. The software remains functional without the updates and the technical support. Determine as to how many performance obligations does the entity have.

Solution

In this contract, the entity appears to have three distinct performance obligations, as each of the services could be considered distinct within the context of the contract, and each could be provided by different entities:

  1. The software license - This is a distinct service as it provides functionality to the customer independently from the other services.
  2. The installation service - This service involves modifying the user interface for each type of user. While it doesn't significantly modify the software itself, it enhances the customer's ability to use the software and is distinct from the software license and the technical support.
  3. Unspecified software updates and technical support for a two-year period - This is also a distinct service as it can be used independently of the other services, and is also sold separately. The support provides an ongoing service that extends over a period of time.

Therefore, the entity has three performance obligations under this contract according to IFRS 15.





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