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Determine the number of performance obligations

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Question - Assume that TSA, Inc. entered into a contract with client Anon for $230,000 on January 1, Year 1, to transfer a software license and an additional $15,000 for installation of the software. The license entitles Anon to use the software in its current form over an unlimited period and does not include updates. Two years of customer support come free with the license. In recent stand-alone contracts with other customers for the same software, TSA has charged $200,000 for the software license, $40,000 for two-year customer support, and $20,000 for installation. The software is usable without customer support from TSA and it can be installed by other vendors. The installation is expected to take 250 hours, of which 150 hours will be required in Year 1 and the remainder in Year 2. The entire fee of $245,000 is collected on the contract date. Base your answers on the conceptual framework in ASC 606.

-Determine the number of performance obligations, and the contract price to be allocated to each, in the following situations:

-The installation service does not modify the software.

-Installation involves customizing the software to work seamlessly with other software used by the customer. As before, the installation can be performed by other firms as well.

-Explain why your responses in i and ii above differ referring to ASC 606-10-55 (paras. 146 and 147) and 606-10-25 (paras. 14, 19, 20, and 21).

-How much revenue will be booked in Years 1 and 2 from the contract in each case? Assume that all conditions for revenue recognition other than those specified have been met in the situations above.

Reference no: EM133020358

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