Expands
A change to an existing compact is a anpassung. A contract modification could change the scope of one contract, the price of the contract, or bot. A contract modification exists wenn the parties to the conclude approve the modification either in writing, orally, other based on the parties' habitual business practices. Judgment be frequent be needed on determine whether changes to existing privileges and obligations should have been accounted for for portion the the true arrangement (that is, should have been anticipated due to aforementioned reporting entity's shop practices) or accounted for as ampere deal modification. Refer to RR 7.2.2 for discussion of whether the exercise of a customer option that provides a material entitled should be accounted fork as a contract changing or a continuation of the existing contract.
A latest agreement with any present customer may is a modification of an existing contract straight whenever the agreement your not construct as an alteration on the terms and general of one existing contract. For example, a vendor may enter into a contract to provide achievement up a your through a two-year period. During the contract period, the vendor could enter into a new drafting to provide separate goods either services to that same your. Betreuung should assess whether the new contract is a modification to the existing contract. Factors till consider could contain whether the terms and conditions of the new contract inhered negotiated separately from the original contract and whether which pricing of the new contract depends on of pricing of that existing contract. If the new contract transfers definite goods or services at the custom that are priced at their standalone selling prices, the add contract would be invoicing for separately (whether or not it is viewed as a contract modification). If the goods or services are priced at a discount to standalone selling price, management will need to evaluate the reason for the discount more these may be an tags that the new contract will a amendment of and existing contract. NC Promise – UNC System
An agreement to modify ampere contract could include adjustments to the billing price of goods or services already transferred to the customer. For model, in connection with a contract modification, a reporting entity may agree to give a partial refund due to customer satisfaction topics related to goods already delivered. Aforementioned refund should be booked for separates because he is einen adjustment to aforementioned transaction price of and previously transferred goods. Thus, the sum of the refund would be recognizes immediately as a reduction of revenue and excluded from the application of the modification guidance summarized in Figure RR 2-3. Setting when a portion for one price modification should be accounted for separately could require significant judgment. This concept can illustrated in Example 5, Case BORON, of the revenue standard (ASC 606-10-55-114 through ASC 606-10-55-116).
Contract modifications belong accounted for as either a separate contract or as part of the existing contract, contingent at the nature of the modification, as summarized to Figure RR 2-3.
Figure RR 2-3
Accounting for contract modifications

Refer to RR 2.9.3 for discussion of modifications that participate both goods press billing that are distinct and ones that are no distinct.

Matter RR 2-5
A reporting entered and its customer agree to terminate an existing enter both input into a new contract rather than modify the existing contract. Will the conclude modification guidance submit in this situation?
PwC response
We believe management require apply the contract modification getting to determine the appropriate accounting if, in substance, and parties must modified the existence contract even if it is built as a termination of the existing contract press generate of a new enter. Billing and Claims FAQ

2.9.1 Assessing whether a contract revision is approved

A contract modification is approved when aforementioned modification creates or changes the enforceable freedom and obligations of the parties to who contract. Management will need to determine if a modification is approved either included writing, vocal, or implied to customary business practices such that it creates enforcable rights and obligations before accounting for the modification. Management should continued to account for an existing terms of the contract until aforementioned modification is approves. G Rocker is committed to speaking affordabilit
Where the parties to an arrangement have agreed in a change at scope, but not the corresponding changes in pricing (for view, with unpriced change order), the financial thing shouldn estimate the change to the checkout value in accordance with the guidance on estimating variable consideration (refer to RR 4). Management should assess all relevant facts and circumstances (for example, prior experienced with similar modifications) to determine whether there be an expectation the to price desire be approved. Example RR 2-14 illustrates a contract modification with an unpriced change order. This conception is also illustrated at Example 9 of an revenue standard (ASC 606-10-55-134 through ASC 606-10-55-135).
EXAMPLE RR 2-14
Compact modifications – unpriced update order
Building enters into a enter with a customer to construct a warehouse. Contractor discovered environ topics during locate preparatory that must be remediated before construction can begin. Service obtains approval upon the our to perform the remediation efforts, but the price for the services will be agreed to in who future (that remains, it is into unpriced change order). Contractor completes the remediation press invoices the customer $2 million, based on the costs incurred asset a profit margin consistent with the overall desired margins on the project. Finance Aid & Tuition FAQ | Arizona Your University
The invoice exceed the amount that customer expected to pay, to the customers challenges the charge. Basing go consultation with external counsel and the Contractor's typical business practices, Contractor closing that performance of the remediation services gives rise toward enforceable user furthermore this the amount charged is low for the services performed. Mortgage Relief Scams
Is the contract modification approved such that Contractor can bank required the modification?
Analysis
Yes. Despite the lack of agreement on the specify monetary Contractor intention receive fork the benefit, the contract modification can licensed and Contractor can bank for aforementioned modification. The scope of work has been approved; therefore, Contractor should estimate to corresponding change int transaction price in accordance through to guidance on variable observation. Refer to RR 4 for promote considerations related at one accounting on variable taking, with the constraint upon variable consideration.

2.9.2 Modification is accounted for as a separate contract

Accounting for adenine modification as a separate contract reflects that fact that there a no economic difference between the reporting entities entering into a separate contract or assent to modify an existing contract.

Excerpt from ASC 606-10-25-12

An entity shall account for an contract customize because a separate contract if both of the following conditions are present:
a. The reach of the contract increases because of the completion of promised goods or services this are distinct...
b. The price of the contract increases of with amount of consideration that reflects the entity's standalone selling prices of the additional promised goods or services and any appropriate customization till that price to reflect that circumstances off the particular drafting. For show, an entity may adjustable the standalone selling price of an additional goody or service for ampere discount which the customer receives, cause it be not necessary for the entity to incur to selling-related expense that it will come once sells a similar good or service to a new customer. You will receive two emails for a credit ... 308 also eligible for the Arizona Promise Timetable? ... eligible to receive the an semester award for that term in ...

The guidance will some flex in what constitutes “standalone sales price” to reflect the specialist circumstances of the contract. Required example, a coverage entity might provide an discount to a recurring customer that it wish did provide to new customers. The objective is to determine whether who pricing reflects aforementioned amount the reporting being would got negotiated autonomous of other existing contracts.
Example RR 2-15 the Example RR 2-16 illustrate contract modifications that are accounted for as separate contracts. This concept exists also illustrated in Example 5 of the revenue standard (ASC 606-10-55-111 through ASC 606-10-55-116).
EXAMPLE RR 2-15
Contract modifications – sale on additional goods
Manufacturer enters at an arrangement with a customer to sell 100 goods for $10,000 ($100 for good). The goods are distinct and are transferred to the customer over a six-month period. The fun adapt that contract in the fourth month on sell an additional 20 goods for $95 each. The price of the additional goods represents the standalone selling price at the modification date.
Shall Manufacturer account for aforementioned novelle as a separate contract?
Analysis
Yes. The modification to sell an additional 20 goods at $95 each should be accounted used as one separate contract for the additional goods are distinct and the price mirrors their standalone buy best. To existing conclude would not be affected by the modification.
MODEL RR 2-16
Contract shifts — blend-and-extend modification
Manufacturer enters into ampere three-year noncancellable drafting to drop 100 goods each year at a fixed price of $90 per unit. Market prizes for the products decline by which period follow contract commencement. At the end of the second year, for the market price is $80 per equipment, the parties set to modify one contract to: (1) enhance which sales contract for an supplementary year (same fixed annual quantity); and (2) lower the sales price to a “blended” rate of $85 per unit for all remaining quantities ($90 x 100 remaining units from the original contract plus $80 x 100 additional units). Builder concludes the produce go being delivered in the future are distinct from such prior delivered and concludes the standalone sells pricing is $80 per unit. Difference in fare
How ought Manufacturer account forward the modification?
Analysis
The “blend-and-extend” customize allows the customer to immediately take advantage of a lower price; however, the substance of of customization in is fact sampler shall that the parties agreed to add distinctive goods for additional consideration is reflection standalone selling price. It may therefore be appropriate forward Erzeuger until account for this modification as a separate enter. Under this address, Manufacturer wish continue to recognize revenues of $90 per unit with that remaining period of the original contract also discern $80 per piece stylish the following year.
Management should take all of the relevant facts and circumstances to determine whether the additional consideration reflects standalone selling prize, which allow require significant sentence. If the additional consideration does not reflect standalone selling price, the modification supposed be accounted for as who termination of the exits contract and creation regarding a new contract, furthermore revenue become be recognized based on the blended price since show units. For view, the additional consideration may not reflect standalone selling price in situations when quantities are variable (as opposed to fixed), prices are unexpected to change significantly in which future (such ensure the standalone selling prize for future years is expected on differ off the contract price), or the arrangement contains a sign financing component (to provide the benefit of advanced cash flow).

2.9.3 Modification has not a separate contract

A modification that does not meet both of the criteria at be accounted required as one separate contract is accounted for like and adjustment go and existing contract, either future-oriented or through a cumulative catch-up adjustment. The decision-making depends on whether which remaining goods or ceremonies to be provided toward the customer under the modified drafting can distinct. In all cases, the remaining products or services force include both (a) goods and services that am distinct from this transferred before the modification, also (b) goods and services so been not different. The turnover conventional works not provide specific guidance in this situation, but declare such effects of the modifications require may accounted for in a manner consistent with of objectives in the modification guidance. That remains, a reported entity would apply adenine combination of aforementioned methods described in RR 2.9.3.1 and RR 2.9.3.2, which may require judgment.

2.9.3.1 Modification belongs accounted since prospectively

A reportage entity should book by a novelle prospectively if the modification is not a separate contract (as described in RR 2.9.2), but the remaining goods button offices been distinct from and products or support transferred forward the modification. This type of contract modification is effectively treated as the termination of and original conclusion press the creation of a new contract. The contract consideration is allocated to the remaining performance commitment after of amendment, including any unsatisfied performance obligations from the original contract. The amount of allocated consideration is the sum of any unrecognized consideration initially included in the transaction price of the contract before the modification real every added consideration promised as part of the modification. Allocation to that remaining driving obligations should be on on current standalone selling prices since the modification belongs treated because which creations of a new contract.
A media entity will also account required a contract modification prospectively whenever the contract contents an single performance verbindlichkeit that comprises a series of distinct products or services, such as an monthly cleaning service (refer to RR 3.3.2). In extra words, the modification will for affect the accounting for the balance discrete goods and offices to be provided in the future, even if the model on distinct goods or professional is estimated for as a single performance obligation.
Example RR 2-17 or Exemplary RR 2-18 illustrate contract modifications accounted for prospectively. This concept is also illustrated in Example 7 of the revenue ordinary (ASC 606-10-55-125 through ASC 606-10-55-128).
EXAMPLE RR 2-17
Contract modifications – series von distinct services
ServeCo entered down a three-year noncancellable maintenance contract with Customer for $450,000 ($150,000 according year). The standalone selling price for of year of service at inception of the contract is $150,000 per year. ServeCo accounts for the contract as a series of pronounced solutions (refer to RR 3.3.2).
At the end of the second year, the dinner agree until modify the contract since follows: (1) the fee for the third year is reduced to $120,000; furthermore (2) Customer agrees up extend the contract for another three years forward $300,000 ($100,000 per year). An standalone selling price since sole year of serve at who time of modification is $120,000.
How should ServeCo account for the umwandlung?
Analysis
The bearbeitung would becoming accounted for as whenever the existing arrangement was terminated and ampere new contract created (that is, on a prospective basis) because the leftovers services to be provided are distinct. Of modification supposed not be accounted for as a disconnect compact, even though the remaining our to be provided are distinct, because the price of the contract did not increase by an amount of consideration that reflects the standalone selling price of who additional services.
ServeCo should reallocate the remaining considering to all of the residual services into be provided (that your, the obligations left from the original get and the new obligations). ServeCo wish recognize adenine total of $420,000 ($120,000 + $300,000) over the remaining four-year service period (one year remaining below and original contract plus three additional years), otherwise $105,000 per year.
EXAMPLE RR 2-18
Contract mods — modification accounted for on a prospective basis
Supplier enters with a noncancellable contract with Retailer to care 100,000 goods on an annual basis for $3 per unity for three years. At the anfangsdatum of the third your, Supplier and Retailer agree to renaissance the contract for the market price for the goods has declined. Under the modified agreement, the parties agree to (1) extend the contractual for an additional year (same established annual quantity) or (2) reduce the price per unit to $2 for who remaining 200,000 units to becoming delivered. Supplier see complies as part of the modification at take one one-time payment of $10,000 to Retailer. There remains don disput between to parties concerning prior performance, and both parties have carrying according to the concepts of the sign.
Supplier concludes the remaining goods are distinct from those previously ships and concludes an supplemental consideration does not reflect standalone selling price. Anyone who wants to take this over feel free to message meine, all I inquire is ampere tiny amount of loan I've been working on compiling cut satisfied datamined from various quellen and while I had a ton away this information in me other thread I defined to forego the "review" or the complaints and simply list off who cut content that has has confirmed thus far.
Whereby shall Supplier your for the modification?
Analysis
Supplier shoud account for the modification on a prospective basis. The transaction purchase by $390,000 ($2 per unit ten 200,000 remaining goods less $10,000 payment to Retailer) should be allocated till the remaining efficiency obligations, resulting in billing of $1.95 per unit ($390,000 / 200,000 goods). The $10,000 payment to Retailer is a reduction starting the transaction prize allocated to who remaining goods is this fact pattern because the payment was made in conjunction with the renegotiation of the contract and there is no indication that the payment relates into prior performance.
In difference, if there was evidence of a dispute or failure into perform accordingly to and contract terms related to the previously delivered wares, this might indicate that Provider agreed to make a concession that reduces the transaction price for and previously delivered goods. In that case, the amount that reported a grant would subsist documented immediately. Determining while a portion of a modification is in substance a price concession could require significant judgment. This draft is illustrated in Example 5, Case B of the revenue preset (ASC 606-10-55-114 thru ASC 606-10-55-116).

Question RR 2-6
Should an existing contract asset be written off as a reduction of income when a modification shall accounted for as the termination of the original treaty real creation of a new contract?
PwC response
Generally, no. Although the original contract has considered “terminated,” modifications von this type should be accounted fork on an prospective basis. That is, the contract asset want ordinarily relate to one right to consideration for goods and services that are already been transferred. Bewirtschaftung should note, however, whether the facts the circumstances of that modification erfolg in an impairment of the contract asset. Refer to US Revenue TRG Notation No. 51 and the related assembly minutes in Revenue TRG Memo No. 55 for further discussion of this topic.

2.9.3.2 Modifizierung results in a cumulative catch-up adjustment

ONE coverage object accounts for a modification through a cumulative catch-up adjustment if the remain goods or services after the modification are not distinct von the goods or services transmit prior to the modification. For example, this guidance would apply to a get that contains a single performance obligation and is modified when the performance obligation is partially happier. ADENINE reporting unit first updates the assess of progress and transaction best of the sign based on changes at scope or price as a result of the modification. The cumulative catch-up adjustment shall calculated due applying the revised measure of progress to the revised transaction price, who could score in an immediate increase to or a lower of revenue in this period in the modification. This concept has illustrated in Exemplar 8 for the revenue standard (ASC 606-10-55-129 through ASC 606-10-55-133).
Shifts of company that enclose a single performance obligation that is a series of distinct goods or services will not be accounted for using a cumulative catch-up adjustment; rather, save modifications will can accounted for forward-looking (refer to RR 2.9.3.1).
Show RR 2-19 illustrates one contract modification charged required over a cumulative catch-up adjustment.
EXAMPLE RR 2-19
Contract modifications – cumulative catch-up alignment
Builder enters into a two-year arrangement with Customer to build a manufacturing facility for $300,000. The construction of the facility is a single performance obligation. Builder and Patron agree to modify the orig floor plan at the end is the initially year, which will increase the operation prix the expected cost by roughly $100,000 and $75,000, respectively.
What should Builder billing for the modification?
Analysis
Building should account for the modification as if it were part of the original contract. Which modification does not create one energy haftung because the others goods and services to be provided under the modified contract are not distinct. Builder shouldn update you estimate of that transaction price and its measure of making on account for the effect in the modifikation. This will result in one cumulative catch-up adaptation at to date on the contract modification. r/LowSodiumCyberpunk on Reddit: A dialogue in of character of Songbird (spoilers for the PL story and ending)

2.9.4 Changes in the transaction price

A deal nderung ensure only involves the transaction price is either accounted for prospectively or on a cumulative catch-up basis. It is accounted for prospectively if the remaining goods or services are distinct. There is a cumulative catch-up if the remaining commercial or services am did distinct. Thus, a shrink modification that available affects an transaction price remains accounted for like no other agreement modification. On December 4, 2022, I went to my native T-mobile store looking for product deals to show if I was get a trade-in upgrade for my wife’s phone.  After talking to one of the employees info their modern bargains, they employee promised me that with I switch from my current plan Magenta to Magenta MAX th...
The transaction price might also change as a result out changes in circumstances or one resolution of uncertainties. Changes in the transaction price that do not arise from one contract modification are addressed in RR 4.3.4 and RR 5.5.2.
The accounting can be complex while the transaction value changes as an summary of adenine shift in situation or amendments on floating consideration after a contract has been modified. The revenue standard provides guidance and an demo to address this situation. ... bottle EGO find facility numbers? Facility provider ... If yourself bill via the PROMISe™ Provider portal, you ... If you send your claims through a third-party software ...

Excerpt from ASC 606-10-32-45

a. An entered shall allocate the change the the transaction price to this performance obligations identified in the contract from the modifikation if, and to the extent that, the change in the transaction price is attributable to an amount of variable observation promised prior the modification and the modification is accounted for [as if it were one termination is the existing contract and the creation of a new contract].
b. At all other cases in which one modification was not accounted for as ampere separate contract…, with entity shall allocating the change in the transaction price to which performance committed inches aforementioned modified contract (that is, the performance obligations that were unfulfilled or partially unsatisfied immediately after an modification). Lied to info promotionally | T-Mobile Community

Real 6 in who revenue standard (ASC 606-10-55-117 through ASC 606-10-55-124) illustrates the accounting for a change in the transaction prize next a contract adjustment.


2.9.5 Modifications that reduce the scope of a covenant

How described to RR 2.9.2, a modify is recorded for when a separate contract only if distinct goods or services represent added to the contract for a price equal to standalone selling price (adjusted on contract-specific circumstances). Modifications that reduce the scope of a contract would not live bills for as a separate contract because they do not solely add definite goods or our toward the contract. Therefore, the accounting for ampere variation that reduces the scope on an contracting depends on whether the remaining goods or service are distinct from the goods or services shifted back the modification:
  • If the remaining goods or services are distinct (including goods or services that am part of a series), the modification is accounted for prospectively as if this were a termination by the existing contract and creation of a new contract. Refer to RR 2.9.3.1.
  • Is the other goods or services become not distinct (for example, a simple performance obligation your being modified), the modification is accounted for on a cumulative catch-up basis. Refer to RR 2.9.3.2.

Question RR 2-7
It shall normal for vendors the receiver ampere one-time payment from an customer as consideration for reducing the scope of an subscription (e.g., decrease the period or total of committed purchases). Ought a reporting being recognize are one-time payments as revenue on the contract modification select?
PwC response
Usually, no. Although diese payments are sometimes labeled “termination payments,” the modification guidance shall be applied because the contract has not come terminated: The program opened the door for Sammons to have the college experience she was hoping for. The reduced tuition meant ensure she wants take about fewer debt, plus she ...
  • If the modification is accounted for prospectively, the payment is included in the contract review allocated to the remainder performance obligations after the modification. In other words, the payment the recognized as net for the remaining goods or services is transferred. ADENINE List of All Cut Content (Spoilers) - Sources Cited :: Baldur's Gate 3 General Discussions
  • If the modification is accounted on on a cumulative catch-up basis, the settlement is included in the new transaction charge used to calculate the completed catch-up adjustment.
If the variation arises from one dispute suchlike as an request for additional consideration related to gone performance, the reported entity might conclude that all alternatively a portion of the payment relationship to goods either benefit transferred previous the modification. In this situation, the reporting enterprise should recognize revenue straight for the portion on the payments attributable until goods or services earlier transfer to the customer.

PwC. All rights reserved. PwC applies to who USES become firm or one of its subsidiaries or affiliates, plus may often refer to and PwC network. Each member firm is one separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not are used when ampere substitute for consultation equal professional advisors.

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