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Q5BE.

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Intermediate Accounting (Kieso)
Found in: Page 1032

Short Answer

Ismail Construction enters into a contract to design and build a hospital. Ismail is responsible for the overall management of the project and identifies various goods and services to be provided, including engineering, site clearance, foundation, procurement, construction of the structure, piping and wiring, installation of equipment, and finishing. Does Ismail have a single performance obligation to the customer in this revenue arrangement? Explain.

Ismail accounts for the bundle of products and services as a single performance obligation since the commodities or services are intricately interrelated.

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Step by Step Solution

Meanings of Revenue Arrangement

Revenue elements are contained in Revenue Arrangements (performance obligations). Revenue Rule, the start of revenue plan and end dates, and revenue allotted amount are all distinct properties of elements.

Performance obligations in this revenue arrangement

Because the commodities or services in the bundle are intimately interconnected, Ismail accounts for the bundle of goods and services as a single performance obligation. Ismail also offers a valuable service by combining the commodities or services into a single commodity (the hospital) the consumer has contracted. In addition, to satisfy the contract, the goods or services are considerably changed and personalized. In another way, the company's goal is to convey a bundled item. Revenue for the performance obligation would be recognized over time by adopting an acceptable measure of progress toward fulfillment.

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