Explain how revenue should be allocated to the components in a multiple deliverable sales arrangement.

Question

Quizplus · Accepted Answer

The Answer is While IAS 18 paragraph 13 makes it clear that enterprises should allocate revenue to the components of arrangements with multiple deliverables, the standard does not specify how this allocation should be made. Different methods can result in different amounts allocated to each component and different timing of recognition.
In principle, there are two reasonable ways to make this allocation. The first is the relative fair value method (also called the proportional method), meaning that we allocate revenue in proportion to the estimated fair values of the components.
The second method is the residual value method, meaning that one of the components picks up the portion of the sale price that remains after allocating to all the other components.

Explain How Revenue Should Be Allocated to the Components in a Multiple