“Can function separately” answers only part of the question. A device may work with another vendor's installation service, yet the seller may be providing a significant integration service that transforms device and installation into one combined output. Or installation may be routine and separately identifiable, producing two obligations.
Document both branches. Evidence includes compatible alternatives, the seller's integration responsibility, customization, whether one promise significantly modifies another, and whether the promises are inputs to one combined output. Contract line items and separate delivery dates are clues, not decisive tests.
Both tests in ASC 606-10-25-19 must be met. Paragraph 25-20 explains how the customer can benefit with readily available resources. Paragraph 25-21 focuses the contract-context test on integration, significant modification or customization, and high interdependence. A promise that fails the tests is combined with other promises until the resulting bundle is distinct under 25-22.
Compare the two tests in the Cedar promise map before preparing the independent Summit map.
Put the concept to work
Understand this concept
- Distinguish the customer's ability to benefit from a promise from whether that promise is separately identifiable in the contract context.
Analyze this concept
- Analyze integration, significant modification or customization, and interdependence facts without using separate pricing or delivery as an automatic answer.
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Build on these ideas
- Distinct good or service — Understand
To analyze this concept: Required. The two-part test structures the contract-context analysis.
- Performance obligation — Understand
To understand this concept: Required. Distinctness determines how promises become performance obligations.
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- Contract modification — Understand
Required level here: understand. Required. Remaining distinct goods or services determine the modification path.
- Distinct good or service — Analyze
Required level here: understand. Required. The two-part test structures the contract-context analysis.