Deferred Income

Hi please explain why they take 100/75 instead of 25/125. Thanks.

On 1 October 20X2, Speculate Co sold one of its products for $10 million. As part of the sale agreement, Speculate Co is committed to the ongoing servicing of the product until 30 September 20X5 (i.e. three years after the sale). The sale value of this service has been included in the selling price of $10 million. The estimated cost to Speculate Co of the servicing is $600,000 per annum and Speculate Co’s gross profit margin on this type of servicing is 25%. Ignore discounting.

What is the amount of deferred income witch Speculate Co should recognise in its Statement of Financial position as at 30 September 20X3 relating to the contract for supply and servicing of products.