ExpertMedium2 marksMultiple Choice
ACCA · Question 11 · IFRS 15 Revenue from Contracts with Customers
Section A
CloudNet, a Software-as-a-Service (SaaS) provider, signs a 2-year contract with a client for $24,000. The contract requires CloudNet to provide access to its cloud platform and to perform a customized initial setup. The setup does not significantly modify the software and has no standalone value to the customer without the cloud access. CloudNet charges a non-refundable upfront fee of $4,000 for the setup, and $10,000 per year for access.
How much revenue should CloudNet recognize in the first year of the contract under IFRS 15?
Section A
CloudNet, a Software-as-a-Service (SaaS) provider, signs a 2-year contract with a client for $24,000. The contract requires CloudNet to provide access to its cloud platform and to perform a customized initial setup. The setup does not significantly modify the software and has no standalone value to the customer without the cloud access. CloudNet charges a non-refundable upfront fee of $4,000 for the setup, and $10,000 per year for access.
How much revenue should CloudNet recognize in the first year of the contract under IFRS 15?
Answer options:
A.
$14,000
B.
$10,000
C.
$12,000
D.
$24,000
How to approach this question
Determine if the setup fee represents a distinct performance obligation. If it does not (because it has no standalone value), combine it with the main service and recognize the total transaction price over the contract term.
Full Answer
C.$12,000✓ Correct
Under IFRS 15, a good or service is distinct if the customer can benefit from it on its own. Since the setup has no standalone value, it is not a distinct performance obligation. Therefore, the setup fee and the annual fees are combined into a single transaction price of $24,000 ($4k + $10k + $10k). This single performance obligation is satisfied over time (2 years). Revenue for Year 1 = $24,000 / 2 = $12,000.
Common mistakes
Recognizing non-refundable upfront fees immediately. IFRS 15 requires assessing if they relate to a distinct performance obligation.
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