Question

Hillside Company enters into a contract with Sanchez Inc. to provide a software license and 3 years of customer support. The customer-support services require specialized knowledge that only Hillside Company’s employees can perform. How many performance obligations are in the contract?

Short answer

The performance obligations are- providing licensed software with customer support as a package and licensed software as well as customer service.

Step-by-step solution

Meaning of Performance Obligations

The word performance obligationsrefer to the seller's responsibility to execute the terms of the contract and sell or offer services to customers as promised. It could be implied, expressed verbally, or based on conventional business practice.

Performance obligations in this contract

This agreement has two performance obligations as they are providing both Licensed Software and Customer Support and assembling a bundle of Licensed Software and Customer Support. This has assigned both parties to perform certain related duties.