Company XYZ Inc. manufacturers and sells standard machinery. One of the conditions in the sale contract is that installation of machinery will be undertaken by XYZ Inc. During December 2005, XYZ received a special onetime contract from ABC Ltd. To manufacture, install, and maintain customized machinery.
It is the first time XYZ Inc. will be producing this kind of machinery, and it is expecting numerous changes that would need to be made to the machine after the installation is completed, which one period is described in the contract of sale as the “maintenance period.” The total cost of making the changes during the maintenance period cannot be reasonably estimated at the time of the installation. When should the revenue from sale of this special machine be recognized?
(a) When the machinery is produced.
(b) When the machinery is produced and delivered.
(c) When the installation is complete.
(d) When the maintenance period as per the contract of sale expires.