For a performance obligation to be considered distinct, which condition must be met?

For a performance obligation to be considered distinct, it must meet the condition that the promise to transfer the good or service is separately identifiable from other promises in the contract. This means that the good or service is capable of being distinct when the customer can benefit from it on its own or together with other readily available resources.

This concept aligns with the revenue recognition standards under ASC 606, which emphasize that a distinct performance obligation allows the customer to receive the benefits of the good or service without needing to rely on other goods or services provided in the contract.

When a good or service is separately identifiable, it indicates that it can stand alone or be combined with other goods or services to provide value to the customer. This clear separation enables the appropriate allocation of transaction prices and recognition of revenue when the good or service is transferred to the customer.

The other conditions outlined do not fulfill the criteria for distinctness in the context of performance obligations. For instance, the ability of a good or service to be resold is not a requirement for it to be considered distinct. Additionally, if the customer cannot benefit from the good or service independently, it indicates interdependency, which undermines the distinctiveness requirement. Lastly, the capitalization of a good or service does not inherently