In short
A contract modification is a change in the scope or price of a contract approved by the parties. How it is accounted for depends on whether it adds distinct goods or services and at what price.
Key takeaways
- If it adds distinct goods at their standalone selling prices, it is a separate contract.
- If the remaining goods are distinct, treat it as ending the old contract and starting a new one (prospectively).
- If they aren't distinct, adjust revenue with a cumulative catch-up.
Where it's tested
FAR: Revenue Recognition — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under ASC 606, revenue from a performance obligation should be recognized over time if which of the following is true?