Question

A B c с D E 4 5 7 8 11 12 1 On August 1, 2020, ABC contracted with XYZ to provide XYZ with the following products for a total 2 bundled price of $400,000 3 Product 1 (electronic item) - stand-alone selling price is unknown Product 2 (electronic item) - stand-alone selling price is $198,000 6 Product 3 (20 month service contract*) - stand-alone selling price is $154,000. On August 1, payment is made in cash and products 1 and 2 are delivered to the customer. 9 The fiscal year of ABC ends on December 31. LO *The service contract obligates ABC to perform routine maintenance on products 1 and 2 and to repair the products if either fails to function properly. 13 Required: 1. Use the residual approach to determine the stand-alone selling price of Product 1. 15 16 2. Use the cost plus margin approach to determine the stand-alone selling price of Product 1. ABC estimates that the inventory cost of Product 1 is $70,000. ABC normally carns a 20% gross margin on sales. 18 19 20 21 Requirement 1: 22 Stand-alone selling price of Product 1 under the residual approach is: 23 24 Requirement 2: 25 Stand-alone selling price of Product I under the cost plus margin approach is 17 1 2 26 27 28 29 30 31 32 33 34

Answer 1

Given Transaction Price is $400,000. Under the given data, All threee products are separate performance obligations.

Residual Approach:

Transaction Price $400,000

Less: SSPs of Product 2 & 3 (198,000 + 154,000) 354,000  

Stand Alone Selling Price of Product A (400,000 - 354,000) = $46,000

Cost Plus Margin Approach:

Inventory Price $70,000

Margin @ 20% on sales     17,500

(25% on cost)

Standalone Selling Price $87,500

Total Selling prices of 3 products together = 198,000 + 154,000 + 87,500 = $439,500

Relative percentages of total together:

Product 1 = 87,500/439,500 = 19.90%

Product 2 = 198,000/439,500 = 45.06%

Product 3 = 154,000/439,500 = 35.04%

Adjusted Standalone selling price of Product 1 under the transaction = 400,000 * 19.90% = $79,600

Notes: 1. IFRS 15 is applied.

2. Revenue from service contract should be recognised over time and not on invoicing.