PQR Ltd. enters into a contract with a customer on 1 st April, 2023 for the sale of a machine and spare parts. The manufacturing lead time for the…

PQR Ltd. has made sale of two goods – machine and spare parts, whose control is transferred at a point in time. Additionally, company agrees to hold the spare parts for the customer for a period of one to three years, which is a separate performance obligation. Therefore, total transaction price shall be divided amongst three performance obligations (i) Sale of machinery (ii) Sale of spare parts (iii) Custodial services for storing spare parts. Recognition of revenue for each of the three performance obligations shall occur as follows: (i) Sale of machinery: Machine has been sold to the customer and physical possession as well as legal title passed to the customer on 31 st March 2026. Accordingly, revenue for sale of machinery shall be recognized on 31 st March 2026. (ii) Sale of spare parts: The customer has made payment for the spare parts and legal title has been passed to specifically identified goods, but such spares continue to be physically held by the entity. In this regard, the company shall evaluate if revenue can be recognized on bill-and-hold basis if all below criteria are met: Requirement Fact (a) The reason for the bill-and-hold arrangement must be substantive (for example, the customer has requested the arrangement) The customer has specifically requested for entity to store goods in their warehouse, owing to close proximity to customer's factory. (b) The product must be identified separately as belonging to the customer The spare parts have been specifically identified and inspected by the customer. (c) The product currently must be ready for physical transfer to the customer The spares are identified and segregated, therefore, ready for delivery. (d) The entity cannot have the ability to use the product or to direct it to another customer Spares have been segregated and cannot be redirected to any other customer. Therefore, all conditions of bill-and-hold are met and hence, company can recognize revenue for sale of spare parts on 31 st March 2026. (iii) Custodial services: Such services shall be given for a period of one to three years from 31 st March 2026. Where services are given uniformly and customer receives & consumes benefits simultaneously, revenue for such service shall be recognized on a straight-line basis over a period of time.