In a revenue contract modification where the added goods or services are not distinct, how is the modification accounted?

• A. Adjust transaction price and allocate to remaining performance obligations.
• B. Treat as a separate contract.
• C. Derecognize original contract.
• D. Revenue recognized only at delivery.

Answer: (A)

When the added goods or services in a contract modification are not distinct from what’s already promised, you treat the modification as part of the existing contract. The change is not a new contract, so you increase the transaction price by the additional consideration and allocate that amount to the remaining performance obligations of the contract. Revenue is then recognized as those obligations are satisfied, just as before.

This approach keeps the modification tied to the ongoing promises in the original contract, rather than creating a separate arrangement or derecognizing the old contract. If the added goods or services were distinct, you would handle it differently, but not in this case. Revenue is not simply recognized only at delivery; it follows the timing of when the remaining obligations are fulfilled.