Question

A company accounts for a contract modification as a new contract if ________?

1) The modification adds distinct goods or services
2) The modification changes the price of the contract
3) The modification extends the duration of the contract
4) The modification is requested by the customer

Answer 1

A company treats a contract modification as a new contract when it adds distinct goods or services and increases the contract price proportionately.

Step-by-step explanation:

A company accounts for a contract modification as a new contract if the modification adds distinct goods or services and increases the price of the contract proportionately. It is not enough that the modification changes the price of the contract or extends its duration; the key is whether the additional goods or services are distinct, and the contract price increases to reflect this. If the modification is a simple change requested by the customer but does not add distinct goods or services with a proportional price change, it would typically be considered part of the existing contract.