A cellular service provider gives customers a “free” cell phone if they sign a two-year service...
A cellular service provider gives customers a “free” cell phone if they sign a two-year service contract. You are a state tax auditor. The provider records income on this sale of prorating the sales price on a straight-line basis over the period of the service contract. Do you have any concerns about how this provider records this sale?
Homework Answers
As per the General Accounting Matching Concept , Revenue should be recognized in the year in which expenses are incurred for earning that revenue.
As per IFRS 15 , Both the free cell Phone(asset used to deliver services) & Service Contract revenue is to be recognized as per IFRS 15 . Both the transactions are to be treated as seperate performance obligations & revenue is to be recognized as & when the event occurs
Total Agreed Amount of 2year Service is to be Bifurcated between cell phone revenue & service revenue on the baisis of their current Market Value. & is to be recognized on different events
Cell Phone proportionate revenue -Immediately after delivering Cell phone & Service year proportionate revenue is to be recognized on monthly basis after receiving the money.
As a state tax auditor , Straight line method is not acceptable for revenue recognition
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A cellular service provider gives customers a “free” cell phone
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