Performance Obligation: Case Study

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Question 1
Ans: The number of the performance obligations is three.
• The assembly line system of the conveyor, the labeler, and the filler.
• The assembly line system of the capper
• Installation services
In accordance with the FASB ASC 606, the condition of the performance obligation satisfied:
An entity shall recognize revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (that is, an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.(606-10-25-23) [2] Goods and services are assets, even if only momentarily, when they are received and used (606-10-25-25) [3]
The seller may grant to the customer an option to receive additional goods or …show more content…

If any of the three segments breaks down, most companies would choose to replace all three segments togethers. Therefore, the delivery of them should be calculated only one time, while the capper can be used independently, so it is another performance obligation. The installation is an addition option from the seller, who provides the service as free to the customers. Based on the knowledge point from the textbook, options for additional goods or services are considered performance obligations if they provide a material right to the customer that the customer would not receive otherwise.[4]

2. If you need to determine the standalone selling price for installation service, can you use the price charged for installation that FEI heard about from a prior customer (i.e., $2,500)? What type of analysis must be done in order to determine if the $2,500 is the appropriate price level? Please be specific. Explain your answer and cite the ASC numbers.
Question 2
Ans: Assuming the price heard from the prior customers who obtained the satisfactory installation services,

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