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This answer is from BPP revision kit ( condensed)
Johan bears the risk of loss of value of the handset as the dealer may return any handset before a service contract is signed with a customer-The dealer is acting as an Agent for the sale of the handset and the service contract. IAS 18 does not deal directly with agency but implies that revenue for an Agent is the commission earned for the amounts collected on behalf of the principal
The handset cannot be sold separately from the service contract-the two transactions have to be taken together because the commercial effect of either cannot be understood in isolation. Johan earns revenue from the service contract with the final customer not from the sale of the handset to the dealer. So Johan does not recognize any revenue when the handsets are sold to the dealers.
Instead the net payment of $130 (i.e commission paid to agent of $280 less cost of the handset of $150) should be recognized as a Customer Acquisition Cost, which may qualify as an Intangible Asset under IAS 38.
If it is recognized as such it will be amortized over the 12 month contract period. Revenue from the Service Contract will be recognized as the service is rendered.
Trust this helps
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I am not sure, and stand subject to correction, but I believe that the two models do not generally give the same estimate of the cost of equity capital for the following reasons:
1.CAPM is a ‘normative’ or ‘ex ante’ model
DVM is a ‘positive’ or ‘ex post’ model2. CAPM is a single time period model
DVM is a multi time period modelA business environment can change quickly so a business should understand how sensitive its sales costs and income(variables) are to change
Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different to the key predictions (‘What If’ analysis)
Typically this involves changing the value of a variable and seeing how the results are affected.
Management often use this technique when evaluating new policies and goals it may wish to adopt, and it is particularly useful when launching a new product as risk is better understood.
It is also used to analyse an investment’s profitability to evaluate the risk involved.
It considers potential changes to interest rates, costs and/or other vaiables, and can be used to assess the range of values that will still give an investor a positive return.
The uncertainty may still be there but the effect that it has on the investor’s return will be better understood.
Simulation
One of the chief problems encountered in decision making is the uncertainty of the future.Computer models can be built to simulate real life scenarios. The model will predict what range of returns an investor could expect from a given decision without having risked actual cash.
The model use random number tables to generate possible values for the uncertainty the business is subject to. In the business environment it can, for example, be used to examine inventory, queuing,scheduling and forecasting problems.
From the example of the supermarket in the BPP study text, the supermarket was able to generate information from the use of simulation to forecast demand over a ten day period that would allow it to minimise inventory holding without running out of the product, thereby reducing costs but avoiding the loss of sales
The 3 choices of vans that they are considering each has different carrying capacity. A small van can carry 100 crates, a medium van 150 crates and a large van 200 crates.
However demand is expected to be either 120 or 190 crates per period.
Therefore if they purchase the small van they will only be able to carry 100 crates even if demand is 120 or 190 crates, hence the 2 different workings for the small van with the same figures (they are showing what the profit will be at both demand levels).
If they purchase the medium van then when demand is 120 crates they will be carrying less than the van’s capacity of 150 crates and therefore will save 10% of the varaiable cost of (120 x $4)= $48
When demand is 190 crates the medium van can only carry 150 and therefore the profit figure is worked out at this capacity.
With the large van the same reasoning as with the medium van occurs. At demand of 120 crates the van is carrying less than its capacity, so 10% of the variable costs is saved and at demand of 190 crates it is still carrying less than its capacity of 200 crates.
I hope this is helpful when you are looking at the answer and the logic becomes clearer
The explanation is given in the audio lecture on Partnerships. Hope this helps.