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Coal Co sold a specialized piece of equipment to Oil Co on 1 September 2017 for a total price of $4m, which incorporated both the sale of equipment and support service. Due to the specialized nature of the equipment, Coal Co had additionally agreed to provide a support service for two years to 31 August 2019. The cost to Coal Co of providing this service will be $300,000 per annum. Coal Co usually earns a gross margin of 20% on such contracts.
What revenue should be included in the statement of profit or loss of Coal Co for the year ended 31 December 2017? $_____________‘000HI,
I refer you to my previous post of yours regarding attempting the question first as opposed to just wanting a straight out answer.
Thanks
Hello, I am not sure of how to estimate the stand-alone price for the equipment.
tech. support= 20% * 300,000= 60,000, selling price= 300,000+60,000= $360,000
estimate price= 3.9M
total price for equipment and service= 3.9m + 360,000= 4,260,000discount= 4m-4,260,000= 260,000
discount %= 260,000/4,260,000 * 100= 6%
equipment= 94% * 3.9m =3,666,000- revenue recognized
services = 94% * 360,000= 338,400Hi,
You’ve got the $360,000 correct but it is for two years and so the stand alone price of this is $720,000. The remainder is then allocated to the goods, i.e. $3,280,000 ($4 million less $720,000).
The revenue from the sale of goods is recognised at a point in time. The revenue from the service is recognised over the period of time.
Don’t forget that there are only four months of service revenue to recognise.
Thanks
Thanks.
so the revenue recognized is for good 3,280,000 + revenue for service (720,000 * 4/12)= 240,000.
total revenue recognized is 3,520,000?Boom! Get in! Yes, that’s the right answer, top work.
The revenue from goods is recognised at a point in time with the service revenue recognised over a period of time (1 Sept to 31 Dec). Hope you feel good after answering it and getting it right.
Thanks
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