A service warranty is considered to be a separate performance obligation under the contract-based approach for revenue recognition.

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According to the contract-based approach for revenue recognition (as outlined in ASC 606), each distinct performance obligation must be identified and accounted for separately. A service warranty is often considered to be a distinct performance obligation, and therefore would be accounted for separately from the initial sale of a product or service.

A Service Warranty Is Considered to Be a Separate Performance