Revenue – ifrs 15 handbook

Distinct within the context of the contract
When determining whether the pre-production activities 
and the production of the prototype are distinct within the 
context of the contract, S notes that there is a transformative 
relationship between the two, because the outcome of the 
engineering and the development process will determine 
to a great extent the structure of the prototype. It also 
notes that the nature of the promise to B is to provide it 
with a customised prototype, built to its specifications. 
Therefore, it concludes that the pre-production activities and 
the production of the prototype are a single performance 
obligation.

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2 Step 2 – Identify the performance obligations in the contract | 35
2.2 Implied promises and administrative tasks
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2.2 
Implied promises and administrative tasks
IFRS 15.24–25
Promises to transfer a good or service can be explicitly stated in the contract or be 
implicit based on established business practices or published policies that create a 
valid expectation that the entity will transfer the good or service to the customer.
Conversely, administrative tasks do not transfer a good or service to the customer 
and are not performance obligations – e.g. administrative tasks to set up a contract.
Example 10 – Implied promise to reseller’s customers
Software Company K enters into a contract with Reseller D, which then sells 
software products to end users. K has a customary business practice of 
providing free telephone support to end users without involving the reseller, and 
both expect K to continue to provide this support.
In evaluating whether the telephone support is a separate performance 
obligation, K notes that: 
– D and the end customers are not related parties and, as such, these 
contracts will not be combined; and
– the promise to provide telephone support free of charge to end users is 
considered a service that meets the definition of a performance obligation 
when control of the software product transfers to D. 
As a result, K accounts for the telephone support as a separate performance 
obligation in the transaction with D.