14.4 Contract Assets
ASC 606-10
45-3 If an entity performs by
transferring goods or services to a customer
before the customer pays consideration or before
payment is due, the entity shall present the
contract as a contract asset, excluding any
amounts presented as a receivable. A contract
asset is an entity’s right to consideration in
exchange for goods or services that the entity has
transferred to a customer. An entity shall assess
a contract asset for impairment in accordance with
Topic 310 on receivables. An impairment of a
contract asset shall be measured, presented, and
disclosed in accordance with Topic 310 (see also
paragraph 606-10-50-4(b)).
Pending Content (Transition
Guidance: ASC 326-10-65-1)
45-3 If an entity performs by
transferring goods or services to a customer
before the customer pays consideration or before
payment is due, the entity shall present the
contract as a contract asset, excluding any
amounts presented as a receivable. A contract
asset is an entity’s right to consideration in
exchange for goods or services that the entity has
transferred to a customer. An entity shall assess
a contract asset for credit losses in accordance
with Subtopic 326-20 on financial instruments
measured at amortized cost. A credit loss of a
contract asset shall be measured, presented, and
disclosed in accordance with Subtopic 326-20 (see
also paragraph 606-10-50-4(b)).
A contract asset would exist when an entity has a contract with a customer for
which revenue has been recognized (i.e., goods or services have been transferred to
the customer) but customer payment is contingent on a future event (e.g.,
satisfaction of additional performance obligations). Such an amount is commonly
referred to as an unbilled receivable.
The following example from the revenue standard illustrates the recording of a
contract asset for performance completed under a
contract before an unconditional right to
consideration exists:
ASC 606-10
Example 39 — Contract Asset Recognized for the Entity’s Performance
55-287 On January 1, 20X8, an entity enters into a contract to transfer Products A and B to a customer in exchange for $1,000. The contract requires Product A to be delivered first and states that payment for the delivery of Product A is conditional on the delivery of Product B. In other words, the consideration of $1,000 is due only after the entity has transferred both Products A and B to the customer. Consequently, the entity does not have a right to consideration that is unconditional (a receivable) until both Products A and B are transferred to the customer.
55-288 The entity identifies
the promises to transfer Products A and B as performance
obligations and allocates $400 to the performance obligation
to transfer Product A and $600 to the performance obligation
to transfer Product B on the basis of their relative
standalone selling prices. The entity recognizes revenue for
each respective performance obligation when control of the
product transfers to the customer.
55-289 The entity satisfies the performance obligation to transfer Product A.
55-290 The entity satisfies the performance obligation to transfer Product B and to recognize the unconditional right to consideration.