Summary Business Accounting

Question:

What determines whether a company can recognize revenue over time when constructing an asset for a

customer?



Answer:




Under the proposed ASU, if a seller provides the service of integrating products and services into one

asset (for example, as is done in the construction industry), the risks of providing the goods and services

are not separable, so that arrangement is treated as a single service-related performance obligation. The

performance obligation is viewed as satisfied over time if at least one of two criteria is met:

1. The seller is creating or enhancing an asset that the buyer controls as the service is performed.

2. The seller is not creating an asset that the buyer controls or that has alternative use to the seller,

and at least one of the following conditions hold:

a. The customer receives and consumes a benefit as the seller performs.

b. Another seller would not need to reperform the tasks performed to date if that other

seller were to fulfill the remaining obligation.

c. The seller has the right to payment for performance even if the customer could cancel

the contract at the customer’s discretion.