Home › CA Final › financialreporting › performanceobligations › An entity charges a NON-REFUNDABLE upfront activ…
An entity charges a NON-REFUNDABLE upfront activation fee for a new data connection plus monthly usage charges. The activation work is required to enable service but does NOT itself transfer a service to the customer. Under Ind AS 115, the upfront fee is:
ARecognised as service revenue ratably over the activation completion period only
BAn advance payment for future data services — recognised as revenue as those future services are provided
CA separate performance obligation, recognised immediately on activation
DRecognised as revenue immediately on receipt because it is non-refundable
Answer & Solution
Correct answer: B. An advance payment for future data services — recognised as revenue as those future services are provided
Para B49 of Ind AS 115 — when a non-refundable upfront fee relates to an activity that does NOT result in the transfer of a good/service to the customer, the fee is an advance payment for future goods/services and is recognised as revenue when (or as) those future goods/services are provided. Treating it as a separate PO or recognising it on receipt would overstate revenue at inception.
Related questions
An entity agrees to deliver a good for ₹1,00,000; if delivery exceeds 30 days, a penalty rA 5-year contract requires the customer to use the vendor's system to process all of its tAST Ltd. has early-completion bonuses on a ₹25 cr contract: 15% bonus at 25% likelihood, 1XYZ Ltd. enters a contract to build sophisticated machinery for ₹2.5 crore. For each day aAn entity negotiates with airlines, agrees to BUY a specified number of tickets at reducedAn entity enters a 60-day CONSIGNMENT arrangement: it ships 1,000 dresses to a retailer; tAn entity sells Product A for ₹1,000 with a 40% discount voucher usable on additional purcAn entity sells gym memberships at ₹7,500 per year and offers a discounted renewal at ₹6,0