ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue
Dunmore Co sells a bespoke piece of equipment together with installation for $240,000. Installation is a distinct performance obligation. Dunmore never sells installation separately and has no observable price. Its estimated cost of installation is $40,000, and it earns a margin of 25% on cost on similar services. The equipment's standalone selling price is $200,000. Using the expected cost plus a margin approach to estimate the installation SSP, what is revenue allocated to the equipment?
$192,000 is allocated to the equipment. Installation's estimated standalone selling price is cost of $40,000 plus 25% margin, giving $50,000. With the equipment at $200,000, the equipment's share is 200/250 of the $240,000 transaction price.
- A$200,000
- B$192,000Correct
- C$185,185
- D$180,000
Explanation
Installation SSP = $40,000 x 1.25 = $50,000. Total SSP = $250,000. Equipment receives 200/250 x $240,000 = $192,000. Using a margin on selling price rather than cost, or ignoring the discount, gives a different figure; $200,000 ignores the discount.
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