This is an example in a small series for illustrating the concepts in What is a good or service that is distinct?
Introduction from scenario B
The vendor’s contract with its customer is the same as in scenario A, except that as part of the installation service the software is to be substantially customised in
order to add significant new functionality to enable the software to interface with other software already being used by the customer. The customised installation service can be provided by a number of unrelated vendors. In this case, although the installation service could be provided by other entities, the analysis required by IFRS 15 indicates that within the context of its contract with the customer, the promise to transfer the license is not separately identifiable from the customised installation service. In contrast, and as before, the software updates and technical updates are separately identifiable.
The following distinct goods or services are identified:
- Software license and customised installation service; Identify Software industry obligations – Combined services
- Software updates; Identify Software industry obligations – Combined services
- Technical support. Identify Software industry obligations – Combined services
New information: The vendor’s contract with its customer is the same as in scenario B, except that:
- The vendor is the only supplier that is capable of carrying out the customised installation service;
- The software updates and technical support are essential to ensure that the software continues to operate satisfactorily, and the customer’s employees continue to be able to operate the related IT systems. No other entity is capable of providing the software updates or the technical support.
In this case, the analysis indicates that in the context of its contract with the customer, the promise is to transfer a combined service.
This combined service is identified as the single performance obligation.