Home › CA Final › financialreporting › transactionpriceallocation › An entity sells two licences (A and B). SSPs: Li…
An entity sells two licences (A and B). SSPs: Licence A = ₹16 lakh, Licence B = ₹20 lakh. Contract: A is fixed at ₹16 lakh, B is 3% sales-based royalty (estimated ₹20 lakh). Under Ind AS 115, the variable consideration (sales-based royalty for B):
AIs allocated proportionately to A and B using their SSPs of ₹16L and ₹20L
BCannot be allocated until the variable consideration is fully resolved
CIs allocated entirely to A because A is transferred first
DIs allocated ENTIRELY to Licence B — the payment relates specifically to B's outcome AND the resulting allocation is consistent with the allocation objective (₹20L for B + ₹16L for A approximates both SSPs)
Answer & Solution
Correct answer: D. Is allocated ENTIRELY to Licence B — the payment relates specifically to B's outcome AND the resulting allocation is consistent with the allocation objective (₹20L for B + ₹16L for A approximates both SSPs)
Para 85 — variable consideration is allocated entirely to a specific PO if (i) the variability relates specifically to the entity's efforts/outcome on that PO AND (ii) the allocation is consistent with the allocation objective. Here, the sales-royalty relates specifically to B AND ₹20L for B + ₹16L for A approximates both SSPs. Both conditions met → allocate the royalty entirely to B.
Related questions
Telco G grants a one-time RETENTION CREDIT of ₹50 to a customer in month 14 of a 24-month Indicators that control of an asset has been transferred to the customer under Ind AS 115 A construction contractor builds a customised office building on the customer's land. UndeA payroll-processing company contracts to provide monthly payroll services for one year. UUnder Ind AS 115's Step 5, an entity satisfies a performance obligation OVER TIME (rather A consultant signs a ₹2 cr fixed-fee contract on 1 April 20X0 with three distinct POs (dueAn entity has Product A (observable SSP ₹50,000), Y+Z bundle (observable SSP ₹50,000) and An entity pays a non-refundable upfront fee to a retailer-customer to fund modifications t