Question

A company (the seller) provides software to customers for 8 years. In addition to the software, the company also provides the customer consulting services over the 8-year period. The total transaction price is $386,000. The company estimates the consulting services have a standalone value of $120,000 and the software license has a standalone value of $380,000. Assuming the performance obligations are separate, on the date the customer licensed the software, the company should record Unearned Service Revenue of $ . (If no Unearned Service Revenue should be recorded, then enter 0.)

Answer 1

According to IFRS -15

Revenue from any contract has to be recognised when ever the performance obligation is satisfied.

Performance obligation can be satisfied in two methods either a over a period of time or a point of time.

Here performance obligation for software license is satisfied at a point of time where as for consulting service it is transfered over a period of time.

Here we have to apportion the transaction price using the standalone price.

Particulars	Standalone Selling price	Percentage as a Total	Apportionate standalone price
Software	1,20,000	24	92,640
Software License	3,80,000	76	2,93,360
Total	5,00,000	100	3,86,000

Here the revenue for software license has to be recognised over the 8 years term

Revenue has to recognised for each year as 293360/8 = 36670

Hence current year we have to recognise 36670 and revenue should be defered for 2,56,690.

Unearned revenue is $2,56,690

Note - The above problem is done using IFRS -15 , revenue form contracts with customers