Under ASC 606, which of the following scenarios BEST describes a performance obligation that is satisfied over time?

Answer options:

A furniture retailer delivers a custom sofa to a customer's home.

A software company delivers a physical copy of legacy software with no updates or support.

A construction company builds an office building on land owned by the customer.

A car dealership sells a vehicle with a standard 3-year manufacturer's warranty.

How to approach this question

Look for one of the three criteria: 1) Customer receives/consumes benefits simultaneously, 2) Creates/enhances asset customer controls, 3) No alternative use + right to payment.

Full Answer

C.A construction company builds an office building on land owned by the customer.✓ Correct

ASC 606-10-25-27 states a performance obligation is satisfied over time if one of three criteria is met. Criterion B is: 'The entity's performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced.' Building on customer-owned land meets this criterion.

Common mistakes

Confusing service delivery (point in time) with service duration; assuming all warranties are separate performance obligations.

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