Question

Engelhart Implements Inc. sells tractors to area farmers. The price for each tractor includes GPS positioning service for 9 months (which facilitates field settings for planting and harvesting equipment). The GPS service is regularly sold on a standalone basis by Engelhart for a monthly fee. After the 9-month period, the consumer can renew the service on a fee basis. Does Engelhart have one or multiple performance obligations? Explain.

Answer 1

Engelhart Implements Inc. has multiple performance obligations; the sale of the tractor is one, and the included GPS service is another, as it can be sold separately and is renewable after the included period.

Step-by-step explanation:

Engelhart Implements Inc., which sells tractors with an included GPS positioning service for 9 months, has multiple performance obligations in this transaction. The sale of the tractor is one performance obligation, and the provision of the GPS service, which is also sold separately, is another. The fact that Engelhart sells the GPS service on a standalone basis and that it is renewable after the included period ends, further supports that the GPS service constitutes a separate performance obligation. Therefore, Engelhart must allocate the transaction price to these obligations and recognize revenue as and when each performance obligation is satisfied.