ExpertHard2 marksMultiple Choice
ACCA · Question 03 · Revenue from Contracts with Customers
Section A
CloudStream Inc provides a 12-month SaaS subscription to a client for $120,000, payable upfront. The contract includes a performance bonus of $30,000 if the platform maintains 99.99% uptime for the entire year. At inception, CloudStream estimates a 60% probability of achieving the uptime. CloudStream has extensive experience with similar contracts and uses the 'most likely amount' method.
How much revenue should CloudStream recognize in the first month of the contract?
Section A
CloudStream Inc provides a 12-month SaaS subscription to a client for $120,000, payable upfront. The contract includes a performance bonus of $30,000 if the platform maintains 99.99% uptime for the entire year. At inception, CloudStream estimates a 60% probability of achieving the uptime. CloudStream has extensive experience with similar contracts and uses the 'most likely amount' method.
How much revenue should CloudStream recognize in the first month of the contract?
Answer options:
A.
$10,000
B.
$11,500
C.
$12,500
D.
$15,000
How to approach this question
Determine the transaction price using the most likely amount method for variable consideration under IFRS 15. Then allocate it over the 12-month period.
Full Answer
C.$12,500✓ Correct
Under IFRS 15, variable consideration is estimated using either the expected value or most likely amount. Using the most likely amount, since 60% is greater than 50%, the most likely outcome is receiving the $30,000 bonus. Total transaction price is $150,000. Recognized over time (12 months) = $12,500 per month.
Common mistakes
Using the expected value method ($18,000 bonus) when the most likely amount method is more appropriate for binary outcomes.
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