Question

Company A enters into a contract with Company B on March 1, and end on Nov. 31.

Company A will exchange 100 clothes at discount as well as 100 glasses.

The regular wholesale price of clothes is $85, and cost to produce the glasses is $10.

All goods company A sells has profit margin of 60%.

Company B agrees to pay $9000 in marketing over the life of contract.

company A recognizes $9000 when contract is signed.

Fifty Clothes and glass will be delievered at March 1, 25 on June 1, 25 in August 1.

1) Calculate transaction price of contract?

2)Wholesale price of glasses and discount Company B got on clothes?

3) Allocation of transaction price?

Answer 1

1. Transaction price of the Contract is $ 9000. There are two performance obligations in the contract ie., exchange of cloths at discount and exchange of glasses. As the standalone selling price of glass can be seperately identified, they should not be combined and should be accounted as two seperate performance obligations.

2. Whole sale price of glass = $10*160% = $ 16 per glass

transaction price with respect to cloths = $9000 - ($16*1000glasses) = $7400 ie., $74 per cloth.

discount per cloth =$85 - $ 74 = $11.

Total discount received = 100 cloths * $11 = $1100

3. Transaction price should be allocated between cloths and glasses with respect to the date of delivery as folllows.

Date of recogonition	Particulars	Amount($)
Mar-01	50 cloths @ $74 per cloth	3700
	50 glasses @ $16 per glass	800
Jun-01	25 cloths @ $74 per cloth	1850
	25 glasses @ $16 per glass	400
Aug-01	25 cloths @ $74 per cloth	1850
	25 glasses @ $16 per glass	400
	Total	9000