Map promises before counting performance obligations

How many promises has Linden Peak made, and which are separate performance obligations? The contract lists a device, installation, thirty-six monthly support periods, account activation, an assurance warranty, and an option to buy a software feature at 40 percent below the price offered to comparable new customers. The answer will not necessarily be six.

Inventory promises without deciding too early

Read the signed terms, side letters, sales materials, published policies, and customary practices. Record every promise a customer could reasonably expect. Then mark activities that only enable Linden Peak to fulfill the contract. Creating an internal account and scheduling staff do not transfer a benefit to the customer simply because they consume resources.

For each promised good or service, answer two questions:

1. Can the customer benefit from it on its own or with a resource already available from Linden Peak or another provider?
2. Is the promise separately identifiable in the context of this contract, or is Linden Peak integrating, significantly modifying, or making it highly interdependent with other inputs into one combined output?

The device can operate with qualified third-party installation. Linden Peak's installation is routine and does not modify the device. Those supplied facts support separate obligations. Change the facts so Linden Peak designs and integrates a customized monitoring system whose components do not function as intended until combined, and the context conclusion may reverse even if each component can be sold elsewhere.

Evaluate the service series

Each monthly support service is capable of being distinct and transfers in the same pattern. If the series criteria are met, account for the thirty-six periods as one performance obligation. “Recurring” alone is insufficient: identify the distinct service periods and show why the same method would measure progress for each increment.

Test the option for a material right

Compare the software option's exercise price with the price available to a similar customer without this contract, including ordinary promotions. The incremental discount may be a material right earned through the current contract. If so, estimate its standalone selling price using the incremental benefit and exercise likelihood, allocate consideration to it, and recognize that amount on exercise or expiry. Do not recognize the future software itself before the customer exercises the option.

The assurance warranty routes to a later assurance/service analysis. If it only assures agreed specifications, it is not a Topic 606 obligation; additional service can be.

Mark up the promise map

Follow the Cedar promise-map example. Then prepare the independent Summit map. For each item, state the promised benefit, both distinctness conclusions, and any series, warranty, or option boundary. Finish with two changed facts: one that combines device and installation, and one that removes the material right.