CFA Level I · CFA Level I Exam · Analyzing Income Statements
A software firm sells a licence and one year of support for a single price of $1,200. The stand-alone selling prices are $1,000 for the licence and $500 for the support. The licence and support are distinct performance obligations. The revenue allocated to the licence is closest to:
About $800 is allocated to the licence. The price is allocated in proportion to relative stand-alone selling prices: 1,000 divided by 1,500 is two-thirds, and two-thirds of $1,200 is $800. The remaining $400 goes to the support obligation.
- A$600
- B$800Correct
- C$1,000
Explanation
Total stand-alone value is $1,500. The licence share is 1,000/1,500 = 66.67%, so allocation is 0.6667 × 1,200 = $800. Answer $1,000 uses the stand-alone price without allocating the discount. Answer $600 gives the licence only 50%, as if it were split equally.
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