ExpertMedium2 marksMultiple Choice
ACCA · Question 02 · Revenue from Contracts with Customers
Section A
CloudSync, a tech startup, signs a contract to provide a customer with a customized SaaS platform. The contract requires a non-refundable upfront fee of $120,000 for initial setup (which does not transfer a distinct good or service to the customer) and a monthly subscription fee of $10,000 for 24 months. How much revenue should CloudSync recognize in the first month of the contract under IFRS 15?
Section A
CloudSync, a tech startup, signs a contract to provide a customer with a customized SaaS platform. The contract requires a non-refundable upfront fee of $120,000 for initial setup (which does not transfer a distinct good or service to the customer) and a monthly subscription fee of $10,000 for 24 months. How much revenue should CloudSync recognize in the first month of the contract under IFRS 15?
Answer options:
A.
$10,000
B.
$15,000
C.
$130,000
D.
$5,000
How to approach this question
Determine the total transaction price and the number of distinct performance obligations. If the setup is not distinct, combine the fees and recognize them over the service period.
Full Answer
B.$15,000✓ Correct
Under IFRS 15, if an upfront fee does not relate to the transfer of a promised good or service (i.e., it is not a distinct performance obligation), it is treated as an advance payment for future performance. The total transaction price ($120k + 24*$10k = $360k) is recognized over the 24-month service period, resulting in $15,000 per month.
Common mistakes
Recognizing the non-refundable upfront fee immediately upon receipt is a very common error.
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