Revenue IFRS 15

The revenue recognition for this transaction will depend on the application of the revenue recognition principles under IFRS 15.

Under IFRS 15, revenue should be recognized when the control of the goods or services has been transferred to the customer, and the amount of revenue should be measured at the fair value of the consideration received or receivable.

In this case, the sale of the equipment and the free support are distinct goods and services, as the support is not sold as a standalone product by Henley Co. Therefore, the transaction includes two performance obligations: the sale of equipment and the provision of one year’s free support.

The total transaction price of $900,000 includes the fair value of both the equipment and the support. To allocate the transaction price to the two performance obligations, we need to estimate their respective standalone selling prices.

Since the support is not sold as a standalone product, we can use an observable price of a similar product or service, adjusted as necessary for any differences in the nature, terms, and conditions of the support provided. In this case, the observable price of the support is $100,000, which is what Henley Co usually charges for similar support services.

Therefore, we can allocate $100,000 to the provision of one year’s free support, and the remaining $800,000 ($900,000 – $100,000) to the sale of equipment.

As a result, Henley Co should recognize $800,000 in revenue for the sale of equipment and $100,000 in deferred revenue for the provision of one year’s free support as at 31 December 20X4. The deferred revenue will be recognized as revenue over the period of the support, which is one year in this case.

Bit of read but i hope this explains it.
I am sure Chris can make it more streamlined