The use of the contract based approach to revenue recognition is dependent on whether or not the transaction with the client has commercial substance.

Question

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The contract based approach to revenue recognition is dependent on whether or not the transaction has commercial substance. This means that the transaction has economic significance or value to the parties involved beyond just the accounting treatment. If the transaction has commercial substance, it is appropriate to apply the contract based approach to revenue recognition, which requires the identification of a contract with a customer, determination of the performance obligations, allocation of the transaction price, and recognition of revenue when the performance obligations are satisfied.

The Use of the Contract Based Approach to Revenue Recognition