In accounting for revenue recognition under ASC Topic 606, when there is a modif

Question

In accounting for revenue recognition under ASC Topic 606, when there is a modification of a contract, which of the following is correct?

Multiple Choice

If the modification adds distinct goods or services to the original contract, then a new contract must be created.

If the new contract price does not reflect the stand-alone selling price of the additional goods or services to be exchanged, then a new contract must be created.

If the modification adds distinct goods or services to the original contract and the change in the original contract price reflects the stand-alone price of the additional goods or services to be exchanged, then a new contract need not be created.

If the modification adds distinct goods or services to the original contract and the change in the original contract price reflects the stand-alone price of the additional goods or services to be exchanged, then a new contract must be created.

Explanation / Answer

Contract modifications lead to a separate contract if both of the following conditions are satisfied:

Thus option 4 i.e. last option is correct.

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