Question 1

**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?

Accepted Answer

Determine the transaction price using the most likely amount method for variable consideration under IFRS 15. Then allocate it over the 12-month period.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the expected value method ($18,000 bonus) when the most likely amount method is more appropriate for binary outcomes.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 4

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