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Hi tutor kindly tell me how to solve this one.
Mighty IT Co has developed an accounting software package. The company offers a supply and installation service for
$1,000 and a separate two-year technical support service for $500. Alternatively, it also offers a combined goods and
services contract which includes both of these elements for $1,200. Payment for the combined contract is due one month
after the date of installation.
For each combined contract sold, what is the amount of revenue which Mighty IT Co should recognise in respect
of the supply and installation service in accordance with IFRS 15?
A $700
B $800
C $1,000
D $1,200Wouldn’t it have been really helpful if you had given me that information to begin with?
I’ve answered it already – on sale of a contract the revenue recognition is restricted to the supply and install part and none relating to the ongoing technical support
The individual elements are sold separately for $1.000 and $500 respectively = a total of $1,500
But this is ‘discounted’ if both elements are bought together down to $1,200
$1,200 is 80% of $1,500 so 80% of the supply and installation is $800 and 80% of the technical support is $400
The question asks for how much revenue to recognise in respect of the ‘supply and install’ element and that’s got to be $800
OK?
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