Reference no: EM133185143
Question - XYZ is a cloud-based enterprise resource planning (ERP), order management, customer relationship management (CRM), and e-commerce application services provider. The software suite is entirely cloud-based and hosted on XYZ's digital infrastructure. XYZ does not provide offline access to its software, and the software is unusable without a server subscription.
XYZ sells its customers a licence to access the software online with customised or generic packages based on the capabilities desired by the customers. When a customer purchases a customised package, the engineers must modify the suite so that it is compatible and integrated with the customer's existing systems.
These modifications, however, can be carried out by third parties. Custom implementation services are available only when a customer purchases a new subscription, but they are not required. Typically, implementation services take three months to complete, and customers do not have access to the software services during this time. In addition, the customer can purchase premium support services. These give the customer's employees access to phone/e-mail/live chat support at any time. XYZ also provides consulting and training services to ensure that the XYZ suite is used effectively.
A customer can access both services (consulting and premium support) at any time. Premium support services, on the other hand, are only available in 12-month increments.
XYZ enters into an agreement with Zeus on March 30, 2022. Zeus plans to revamp its materials acquisition, resource management, and global distribution operations with the software. The parties have agreed to the following terms:
Beginning July 1, 2022, a one-year subscription to the web-based XYZ Suite. Services for implementation will begin on April 1, 2022.
Premium support services will be available for one year beginning July 1, 2022. Beginning July 1, 2022 consulting services will be provided for one year.
For XYZ, the total cost (or transaction price) of the contract is $1,000,000.
Zeus will pay XYZ a one-year web subscription (and implementation) of $800,000, premium support services charges of $150,000 per year and consulting services charge of $300,000 for two years.
Required - Allocate the transaction price to the performance obligations laid out in the contract.
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