Question

GinTel Pte Ltd enters into a 24-month contract with its customer where the customer receives Paid-TV services for $30 per month (to be paid at the end of each month). The customer receives a free Set-Top box. The standalone selling price of the Set-Top box is $200, the cost of the Set-Top box is $150, and the standalone selling price of the Paid- TV services is $25 per month.

(a) Under FRS 115 Revenue from Contracts with Customers, identify the separate performance obligations, determine and allocate the transaction price and discuss when revenue should be recognised.

(b) Prepare the necessary journal entries (narrative not required) to illustrate how the above transaction and its matching expenses would be recognised under FRS 18 Revenue instead.

Answer 1

Part (a)

Asper FRS 115,Revenue from contract with customers,there are two separate performance obligatios here,                                                                                                             One is provision of set top box and the sceond one is paid TV service Asper FRS 115 Para 76,the transaction price of (30*24=720)to be allocated to the seperate performance based on the proprtion of stand alone prices.

Stand alone price of set top box =200
Stand alone price of TV service = 25 per month(for 24 months 24*25)=600

Allocation
200/(200+600)*720		Set top box	0.25	180
600/(200+600)*720		TV service	0.75	540

Part (b)

Asper FRS 115 an entity shall recognize revenue when an entity satisfy a performance obligation by transferring a promised goods or services

Hence revenue from set top box should be recognised when transferring it to the customer

Journal entry for set top box
	Cost of goods sold		150
		Inventory account		150

Journal entry(each month) for TV service
	Cash account		30
		Service revenue		30