Company A enters into a contract to manufacture a drill press for $100,000. The

Question

Company A enters into a contract to manufacture a drill press for $100,000. The contract includes installation services at a cost of $2,000 and a two-year service agreement at a cost of $12,000. The drill press cannot be operated without installation. Company A separately sells the equipment, installation services and service agreements. Other vendors could provide the fairly straightforward installation and service. What are Company A’s performance obligations in this contract? Explain your logic in making your determination.

Explanation / Answer

Given the company A is the Manufacturer of drilling press.

The contract includes manufacturing of Machne @ $100000, installation @ $ 2000 & Two year service agreement @ $ 12000.

Generally Company A sells the Equipment, installation and servicing as a seperate activiy and bill seperately.

but since the Company A now enters the Contract as a single contract but seperate ate for each activity, so on completion of each activity Company A can recognise the revenue stage by stage.

Company A is obliged to perform all the 3 activities since all together is entered in as single contract.

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