Contract Combination
Contract combination is the requirement to account for two or more contracts as a single contract when they are entered into at or near the same time with the same customer (or related parties) and meet specific criteria.
Revenue Recognition
Explanation
Under ASC 606 and IFRS 15, contracts must be combined if at least one of the following applies:
• the contracts are negotiated as a package with a single commercial objective,
• the consideration in one contract depends on the price or performance of the other contract, or
• the goods or services promised in the contracts, or some of them, form a single performance obligation.
Once combined, the five-step model is applied to the combined contract: the total transaction price is allocated across all performance obligations based on standalone selling prices. Combination is assessed at contract inception. Changes to an existing contract later are evaluated as contract modifications instead.
Why It Matters
Combination affects allocation and therefore the timing of revenue, for example when a discount in one document relates to goods delivered under another. In practice, the contracts often originate in separate sales orders, quotes, or systems. SAP RAR lets users combine revenue accounting contracts in contract management and simulate the resulting allocation before saving.
Related Terms
Five-Step Model · Revenue Accounting Contract · Contract Modification · Allocation · BRFplus
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