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A customer purchases a PREPAID mobile-services card where the customer decides WHEN to use the services within a permitted band of time. The entity receives cash in advance of providing service. Under Ind AS 115, the prepayment:
AIs treated as a long-term advance from the customer with imputed interest
BIs recognised as revenue immediately on receipt, since the customer has paid in full
CDoes NOT give rise to a significant financing component, because the timing of transfer is at the customer's discretion (Para 62(a) exception)
DGives rise to a significant financing component — interest expense is recognised over the validity period
Answer & Solution
Correct answer: C. Does NOT give rise to a significant financing component, because the timing of transfer is at the customer's discretion (Para 62(a) exception)
Para 62(a) — when the customer pays in advance and the timing of transfer of goods/services is at the customer's discretion, the contract does not contain a significant financing component. The entity recognises a contract liability and releases it to revenue as the customer actually uses the services.
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