Question 1

**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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Recognizing non-refundable upfront fees immediately. IFRS 15 requires assessing if they relate to a distinct performance obligation.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 5

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