An entity provides broadband services to its customers along with voice call service. Customer buys modem from the entity. However, customer can…
CA Final · Financial Reporting · PYQS · November 2024
An entity provides broadband services to its customers along with voice call service. Customer buys modem from the entity. However, customer can also get the connection from the entity and modem from any other vendor. The installation activity requires Ltd. effort and the cost involved is almost insignificant. It has various plans where it provides either broadband services or voice call services or both. Comment on how to identify whether the performance obligations under the contract are distinct by using an automated process?
Suggested Answer and Working Notes:
To identify the performance obligations under the contract and determine if they are distinct, an automated process can be implemented using technology. The following steps can be taken: a. Analyze the clauses in the contract related to the services provided (broadband services, voice call services, modem sales). b. Each clause should be codified using appropriate parameters or tags to capture the relevant information. c. Assign Boolean values (0 or 1) to each parameter or tag in the codified clauses. d. Use "0" to represent "No" and "1" to represent "Yes" for each parameter. e. Define the criteria for evaluating the performance obligations based on the parameters and their Boolean values. f. Consider factors such as the type of service involved, benefits derived by the customer, and promises made in the contract regarding the transfer of goods or services. g. Develop an automated algorithm or script that evaluates the Boolean values of the parameters according to the defined criteria. h. Calculate scores or weights for each parameter based on their significance in determining performance obligations. i. Utilize the scores or weights assigned to the parameters to determine if the performance obligations are distinct. j. If the total score exceeds a certain threshold, consider it a separate performance obligation. The automated process should flag and identify these distinct performance obligations based on the evaluation results. Considering the above facts, the following conclusion arises: There are three separate obligations Broadband ServiceVoice Call ServicesModem
Topics: Ind AS 115
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