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ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue

Harbor plc sells a phone and a 12-month airtime plan for a total of $900. The phone's standalone price is $600. The airtime plan's standalone selling price is highly variable, ranging from $240 to $600 for different customers, and the plan is never sold alone at a consistent price. Phones are always sold at $600. Which approach to estimating the standalone selling price of the plan is most appropriate under IFRS 15?

The airtime plan should be measured at $300 using the residual approach. IFRS 15 permits this where the standalone selling price is highly variable and the other component has an observable price, so the phone keeps $600 and the remaining $300 of the $900 is allocated to the plan.

  1. AResidual approach, giving $300Correct
  2. BAllocate relative to the lowest price, $240
  3. CAllocate the total price equally, $450 each
  4. DResidual approach is prohibited, so use the phone price of $600

Explanation

The residual approach may be used where a good or service has a highly variable selling price. The phone has an observable price of $600, so the plan is $900 - $600 = $300. Equal allocation has no basis in IFRS 15.

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