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Hello Chris,
Derringdo also sells a package which gives customers a free laptop when they sign a two-year contract for
provision of broadband services. The laptop has a stand-alone price of $200 and the broadband contract is for $30 per month.
In accordance with IFRS 15 Revenue from contracts with customers, what amount will be recognised as revenue on each package in the first year?
A $439
B $281
C $461
D $1581. The answer is A and the working is a follows:
Year 1
Laptop (W) $158
Broadband (562 (W) /2) $281
Total =$439
Working
Laptop =$200 (22%) =158
Broadband (30 × 12 × 2) $720 (78%)= 562
Total=$920 100% =7202. Could you explain why $720 has been used and not $920.
-The “value” of the contract is $920.Hi,
We allocate the revenue based upon the stand alone prices. The stand alone price of the laptop is $200 and that of the broadband is the $720. Therefore the laptop makes up 22% of the total price and the broadband the remaining 78%. I then think that there is something missing from the information in the question that should say that the combined price of the contract is $720 and then we can apply the percentages to the above figures, i.e. 22% x 720 = 158. If we were to use the $920 and apply the percentages then we are going around in circles and end up back to the standalone prices.
Thanks
Hello Chris,
Thank you for your answer.
I am seizing the opportunity to clear some on my doubts on IFRS 15.
Step 4 states that we should allocate the transaction price.
– Could you explain why we should do so? Why can’t we record the stand alone?
Like in the example above, the stand alone price for the laptop is $200? Why not recording the amount?Thanks.
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