The following information relates to questions 16 and 17
TelCo provides a bundled service offering to a customer for $3000 upfront. The services provided are as follows:
Upfront advice
'on-call' advice
Database access for a 2-year period
If TelCo were to charge a separate fee for each service if sold separately the fee would be:
Up-front advice $200
On-call advice $2600
Database access $800
-Using the relative fair value approach the amount of revenue recognised in relation to the on-call advice is:
A) indeterminable based on the facts provided
B) $1000
C) $2167
D) $2600

Question

The following information relates to questions 16 and 17
TelCo provides a bundled service offering to a customer for $3000 upfront. The services provided are as follows:
 Upfront advice
 'on-call' advice
 Database access for a 2-year period
If TelCo were to charge a separate fee for each service if sold separately the fee would be:
Up-front advice $200
On-call advice $2600
Database access $800
-Using the relative fair value approach the amount of revenue recognised in relation to the on-call advice is:
A) indeterminable based on the facts provided
B) $1000
C) $2167
D) $2600

Quizplus · Accepted Answer

The relative fair value approach allocates the total transaction price based on the standalone selling prices of each service. The on-call advice's standalone price is $2600, which is 65% of the total standalone prices ($200 + $2600 + $800 = $3600). Therefore, 65% of the $3000 transaction price is allocated to on-call advice, which is $1950.

The Following Information Relates to Questions 16 and 17