paragraphs 22-30

BC94 Contracts with customers can include many promises to transfer goods or services. In the Discussion Paper, the boards proposed that an entity should review the timing of the transfer of the promised goods or services to identify the performance obligations that it should account for separately. Respondents to the Discussion Paper were concerned that this proposal would have required an entity to account separately for every promised good or service in a contract that is transferred at a different time, which would not be practical for many contracts, especially for long-term service and construction contracts. Consequently, the boards decided to provide clearer requirements that result in an entity identifying performance obligations in a way that is practical and results in a pattern of revenue recognition that faithfully depicts the transfer of goods or services to the customer.

BC95 In developing those requirements, the boards observed that in many contracts, identifying the promised goods or services that an entity should account for separately is straightforward. Consequently, the boards developed a principle for identifying performance obligations that separates promised goods or services in a relevant way when applied across the various industries and transactions within the scope of IFRS 15. That principle is the notion of a distinct good or service. The term 'distinct', in an ordinary sense, suggests something that is different, separate or dissimilar. A majority of respondents agreed with using the principle of distinct goods or services to identify the performance obligations in a contract. However, many asked the boards to refine and further clarify the requirements for determining when a good or service is distinct.