QUESTION 71 Allocating variable consideration – distinct goods or services that form a single performance obligation Air Inc enters into a three-year contract to provide air conditioning to the operator of an office building using its proprietary geothermal heating and cooling system. Air Inc is entitled to a semiannual performance bonus if the customer’s cost to heat and cool the building is decreased by at least 10% compared to its prior cost. The comparison of current cost to prior cost is made semi-annually, using the average of the most recent six-months compared to the same six-month period in the prior year. Air Inc accounts for the series of distinct services provided over the three-year contract as a single performance obligation satisfied over time. Air Inc has not previously used its systems for buildings in this region. Air Inc therefore does not include any variable consideration related to the performance bonus in the transaction price during the first six months of providing service, as it does not believe that it is probable (US GAAP) or highly probable (IFRS) that a significant reversal of cumulative revenue recognized will not occur if its estimate of customer cost savings changes. At the end of the first six months, the customer’s costs have decreased by 12% over the prior comparative period and Air Inc becomes entitled to the performance bonus. How should Air Inc account for the performance bonus?