IDENTIFYING PERFORMANCE OBLIGATIONS

NN COMPUTERS MANUFACTURERS AND SELLS COMPUTERS THAT INCLUDE A WARRANTY TO MAKE GOOD ON ANY DEFECT IN ITS COMPUTERS FOR 150 DAYS (OFTEN REFERRED TO AS AN ASSURANCE WARRANTY). IN ADDITION, IT SELLS SEPARATELY, AN EXTENDED WARRANTY, WHICH PROVIDES PROTECTION FROM DEFECTS FOR THREE YEARS BEYOND THE 150 DAYS (OFTEN REFERRED TO AS A SERVICE WARRANTY). IN THIS CASE, TWO PERFORMANCE OBLIGATIONS EXIST, ONE RELATED TO THE SALE OF THE COMPUTER AND THEASSURANCE WARRANTY, AND THE OTHER TO THE EXTENDED WARRANTY (SERVICE WARRANTY).

1. Is this a one performance obligation or a separate performance obligation?
2. How about the extended warranty – one performance obligation or separate performance obligation?

IDENTIFYING PERFORMANCE OBLIGATIONS

AA COMPUTERS LICENSES CUSTOMER RELATIONSHIP SOFTWARE TO ABS COMPANY. IN ADDITION TO PROVIDING THE SOFTWARE ITSELF. AA COMPUTERS PREMISES TO PROVIDE CONSULTING SERVICES BY EXTENSIVELY CUSTOMIZING THE SOFTWARE TO AB’S INFORMATION TECHNOLOGY ENVIRONMENT, FOR A TOTAL CONSIDERATION OF 3,456,000. IN THIS CASE, AA COMPUTERS IS PROVIDING A SIGNIFICANT SERVICE BY INTEGRATING THE GOODS AND SERVICES (THE LICENSE AND THE CONSULTING SERVICE) INTO ONE COMBINED ITEM FOR WHICH ABS HAS CONTRACTED. IN ADDITION, THE SOFTWARE IS SIGNIFICANTLY CUSTOMIZED BY AA COMPUTERS IN ACCORDANCE WITH SPECIFICATIONS NEGOTIATED BY ABS.

REQUIRED: IS THIS A ONE PERFORMANCE OBLIGATION OR A SEPARATE PERFORMANCE OBLIGATIONS.