Page 542 - F2 Integrated Workbook STUDENT 2019

F2: Advanced Financial Reporting

7.2 C

A contract is created when the customer agrees to buy the recording
equipment.

The contract consists of two performance obligations; to deliver recording
equipment and to provide 3 years’ of technical support.

The price of the contract is $650,000. That price is separately allocated to the
equipment and the technical support based on observable prices. $500,000 is
allocated to the recording equipment, $150,000 allocated to the 3 years’
technical support.

Revenue on the equipment is recorded at a point in time. Revenue will be
recorded when control transfers to the customer (when the risks and rewards
transfer). $500,000 is recorded in revenue immediately on 1 July 20X4.

The revenue relating to the technical support is recorded over time. The
customer will simultaneously receive and consume benefit provided by the
service. Revenue will need to be recognised over the 3 year period over which
the support service is provided based upon the performance obligations
satisfied. Only 9 months of the support service has been provided during the
year ended 31st Mar 20X5.

Revenue to recognise:

Equipment $500,000
Technical support ($150,000/3) × 9/12 $37,500
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Revenue for y/e 31/03/X5 $537,500

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