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Required information [The following information applies to the questions displayed below.] A contract exists when it has commercial substance and all parties to the contract

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[The following information applies to the questions displayed below.] A contract exists when it has commercial substance and all parties to the contract are committed to performing the obligations and enforcing the rights that it specifies. Performance obligations are promises by the seller to transfer goods or services to a customer. A promise to transfer a good or service is a separate performance obligation if it is distinct, which is the case if it is both capable of being distinct (meaning that the customer could use the good or service on its own or in combination with other goods and services it could obtain elsewhere), and it is separately identifiable (meaning that the good or service is not highly interrelated with other goods and services in the contract, so it is distinct in the context of the contract). Prepayments, rights to return merchandise, and normal quality-assurance warranties do not qualify as performance obligations, because they dont transfer a good or service to the customer. On the other hand, extended warranties and customer options to receive goods or services in some preferred manner (for example, at a discount) qualify as performance obligations.

1. Knowledge Check 01 Which of the following is a performance obligation?

  • Customer registration fees for swim lessons

  • Document fees when buying a car

  • Extended warranty on the electronics package of a car

  • 30-day quality-assurance warranty on a toaster

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