Question

For contracts that include more than one separate performance obligation, what is the requirement for recognizing revenue?

1) Recognize revenue for each performance obligation separately
2) Recognize revenue for all performance obligations collectively
3) Recognize revenue only for the primary performance obligation
4) Cannot be determined

Answer 1

Revenue should be recognized for each performance obligation separately in contracts with multiple obligations, reflecting the fulfillment of each promised good or service to the customer.

Step-by-step explanation:

For contracts that include more than one separate performance obligation, the requirement for recognizing revenue is to recognize revenue for each performance obligation separately. This principle is part of the revenue recognition standard issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), which helps ensure that the revenue is matched to the services or goods provided and reflects the transfer of promised goods or services to customers. When a contract has multiple performance obligations, a company must allocate the transaction price to each performance obligation based on its relative standalone selling price and recognize revenue as the company satisfies each performance obligation.