question archive Mobile Two Ltd (M2) is a telecommunications provider
Mobile Two Ltd (M2) is a telecommunications provider
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Mobile Two Ltd (M2) is a telecommunications provider. The company entered into a contract on 1 January 2021 to sell the latest iPhone 12 bundled with a two-year service line to a customer. The bundled price of the phone costs $730 and the two-year service line costs $59 per month. The customer will pay for the price of the phone immediately upon signing the contract, and the monthly subscription of $59 is to be paid at the end of each month. The stand-alone selling price of the phone set and the service line is $1,000 and $52 respectively. Required: (a) Identify the performance obligations in this contract. (4 marks) (b) How much revenue should be recognised in the year ended 31 December 2021. Show all your workings clearly and round off answers to the nearest cent, where applicable. (10 marks) Based on your answers in (b) above, prepare the necessary journal entries. (10 marks)
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a. performance obligation
performance obligation exists here, one is to sale the iPhone and second one was giving warranty for two years
b.The M2 company has to allocate the price between iPhone and the warranty .
Given that the stand alone selling price of phone set and the services line is 1000 and 52 respectively
And the total price is 730 + (59*12 month's *2 years) = 2146
So the company has to allocate the price between phone and service line on basis of standalone price
Phone...= (2146/1000*52×2×12 month's )*1000
=955
Service line =2146_955=1191
C. the company has to recognised the revenue of the phone
Bank a/c dr 955
To Sale revenue a/c 955
( is to recognise the revenue of the phone )
Bank a/c dr 596
To revenue from service line a/c 596
(1191/24 months *12 month's =596
( recognised the revenue for 12 month's of service )
Profit and loss a/c dr 595
To provision for warranty a/c 595
( recognised the provision for 12 month's )
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