Home IFRS 15 Ep 02 — Performance Obligations
Episode 02 · 8 min Step 2 · Find the performance obligations

Five Promises, How Many Obligations?

// Inside TerraGold's GH₵800,000 deal — which deliverables are distinct, which combine?

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GH₵ 1 · Contract 2 · Obligations 3 · Price 4 · Allocate 5 · Recognise EPISODE 02 · IFRS 15 · STEP 2 Performance Obligations Inside the GH₵800,000 deal — five promises, how many distinct? PRESS PLAY ▶ RECAP · EPISODE 01 — CONTRACT VERIFIED WHERE WE LEFT OFF All five contract tests passed. TerraGold and Mrs. Owusu have a binding contract under IFRS 15. GH₵800,000 · 30% deposit · 18 months · mortgage-backed. → NOW WE OPEN THE CONTRACT UP Inside that GH₵800,000 deal sit five separate deliverables. Today we ask: how many of them are truly distinct? INSIDE THE GH₵800,000 DEAL · 5 DELIVERABLES Five things TerraGold has promised Mrs. Owusu. PROMISE 01 Serviced Plot of Land Surveyed plot in East Legon estate with utilities run to the boundary. ~ GH₵ 200,000 PROMISE 02 Completed 3-Bed House Constructed by TerraGold over ~24 months on the same plot. ~ GH₵ 460,000 PROMISE 03 Kitchen Fittings Built-in cabinets, oven, hob, sink, extractor — all hardwired in. ~ GH₵ 70,000 PROMISE 04 2-Year Defects Warranty Includes regular repair call-outs & scheduled service visits. ~ GH₵ 40,000 PROMISE 05 Common-Area Maintenance 12 months of grounds, security, lighting and pool upkeep. ~ GH₵ 30,000 Five promises in. The next question — how many performance obligations come out? IFRS 15.27 · WHEN IS A PROMISE DISTINCT? Two tests. Both must pass. Otherwise — combine. CRITERION A · BENEFIT ON ITS OWN Can the customer benefit from this thing alone? Either by itself, or together with other resources Mrs. Owusu can reasonably get. Example: a TV is distinct because she can use it without anything else from the same seller. CRITERION B · SEPARATELY IDENTIFIABLE Is it separately identifiable in context? Or is it so integrated with other promises that the seller is really delivering one combined output? Example: bricks + labour are not distinct — together they make a house, which is the real promise. PASS BOTH = DISTINCT · FAIL EITHER = COMBINE WITH RELATED PROMISES TEST · PLOT + HOUSE → ONE OBLIGATION Can Mrs. Owusu benefit from the plot on its own? She does not want a piece of bare ground. She wants a house. Without it, the plot has no use. PROMISE 01 Serviced Plot Benefit alone? ✗ NO No use without a house BUNDLE PROMISE 02 3-Bed House Built ON the plot ⊕ INSEPARABLE Plot is the canvas COMBINED PO "The Completed Home" ⊕ ONE OBLIGATION Plot + House Test A failed for the plot — bundle it with the house. Two promises, one obligation. TEST · KITCHEN FITTINGS → JOIN THE HOME Test the kitchen fittings. Built into walls. Hardwired into plumbing. Mrs. Owusu cannot remove the kitchen and use it elsewhere. It only works as part of the home. TWO-PART TEST · APPLIED TO THE FITTINGS ✗ Criterion A — benefit alone: No. Built-in fittings cannot leave the house. ✗ Criterion B — separately identifiable: No. They are part of building the house. ⊕ Verdict: Combine with "The Completed Home" obligation. ⊕ COMBINED INTO "THE COMPLETED HOME" 3 promises (plot, house, fittings) → 1 single performance obligation. TEST · 2-YEAR DEFECTS WARRANTY → DISTINCT IFRS 15.B28 splits warranties in two: assurance-type vs service-type. Only service-type warranties are separate performance obligations. ASSURANCE-TYPE (NOT DISTINCT) Just promising: "we built it right". Repairs only if there's a defect that already existed at handover. Treatment: Provision under IAS 37 — combined with the home. ⊕ COMBINED SERVICE-TYPE (DISTINCT) ← THIS ONE Going further: "we'll service it for 2 yrs". Routine maintenance visits, repair call-outs — TerraGold's package. Treatment: Mrs. Owusu can use this — and could buy similar service elsewhere. ✓ DISTINCT PO TerraGold's warranty includes scheduled service — it's a real service obligation, not just an assurance. TEST · COMMON-AREA MAINTENANCE → DISTINCT 12 months of grounds, security, lighting and pool upkeep. A standalone service Mrs. Owusu could buy from any property-management firm. TWO-PART TEST · APPLIED TO COMMON-AREA SERVICE Criterion A — benefit alone: Yes. The service has value once the home is hers. Criterion B — separately identifiable: Yes. Sold separately by other vendors. Recognition pattern: over time, as the months of service are delivered. ✓ DISTINCT — A SEPARATE PERFORMANCE OBLIGATION Both criteria pass. The maintenance service stands alone. 5 PROMISES IN → 3 PERFORMANCE OBLIGATIONS OUT FROM THE SPA PROMISE 01 Serviced plot of land PROMISE 02 Completed 3-bedroom house PROMISE 03 Kitchen fittings & appliances PROMISE 04 2-year defects warranty (service) PROMISE 05 Common-area maintenance (12 mo) PERFORMANCE OBLIGATIONS PO 01 · COMBINED The Completed Home Plot · House · Fittings — bundled. RECOGNISED AT HANDOVER PO 02 · DISTINCT Defects-Warranty Service (2 yrs) PO 03 · DISTINCT Common-Area Maintenance (1 yr) → EACH GETS ITS SHARE OF GH₵800,000 IN STEP 3 Combine what is integrated. Separate what stands alone. Three obligations. KEY TAKEAWAY Performance obligations are the building blocks of revenue. · Find every promise. · Combine what is integrated. · Separate what stands alone. · Then allocate the price (Step 3). TAKE THE QUIZ → Pass the quiz to earn your CPD certificate. RESULT 5 promises → 3 distinct POs
NARRATOR · KOJO Welcome to Episode 1 of IFRS 15. Press the play button below to begin.
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