Page 442 - F2 Integrated Workbook STUDENT 2019
P. 442
Chapter 19
Example 7.5
The selling price of the machine is $900,000 based on observable evidence.
There is no observable selling price for the technical support. Therefore, the
stand-alone selling price needs to be estimated.
A residual approach would attribute $100,000 ($1,000,000 – $900,000) to the
support. However, this does not approximate the stand-alone selling price of
similar support services (which normally make a profit).
A better approach for estimating the selling price of the support would be an
expected cost plus a margin approach. Based on this, the selling price of the
support would be $300,000 ($120,000 × 100/40).
The total of the standalone selling prices of the machine and support is
$1,200,000 ($900,000 + $300,000). However, total consideration receivable is
only $1,000,000. This means that the customer is receiving a discount. The
discount should be allocated across all performance obligations.
The transaction price allocated to the machine should be $750,000
(($900,000/$1,200,000) × $1,000,000)
The transaction price allocated to the technical support should be $250,000
(($300,000/$1,200,000) × $1,000,000)
The revenue will be recognised when (or as) the performance obligations are
satisfied.
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