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A car-maker has a HISTORICAL PRACTICE of offering free 2-year maintenance to end customers of dealers who buy its vehicles. This is NOT in the written contract with dealers but is consistently mentioned in advertising. Under Ind AS 115, the maintenance:
AIs not a performance obligation because it is not written into the dealer contract
BIs an implicit performance obligation arising from customary business practice; revenue is allocated to it and recognised as maintenance is provided
CIs recognised only as a contingent expense if customers actually claim it
DIs a marketing expense, not revenue-relevant
Answer & Solution
Correct answer: B. Is an implicit performance obligation arising from customary business practice; revenue is allocated to it and recognised as maintenance is provided
Para 24 says performance obligations include promises implied by customary business practices, published policies or specific statements if they create a valid expectation in the customer. The carmaker's history + advertising create such an expectation — the maintenance is a separate PO, with revenue allocated and recognised as the services are delivered to retail customers.
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