On January 01, 2022, Noelydio entered into a contract with Baby Lyra to build an item of specialized equipment for delivery on April 30, 2023. However, the exact delivery date is hard to estimate. The amount of consideration specified in the contract is P300,000, but the customer is willing to pay a higher price if delivered earlier (i.e., amount will be increased or decreased by P500 for each day, depending on whether the actual delivery date is before or after April 30, 2023). Below is the sensitivity analysis: 20% likelihood that product will be delivered on April 30, 2023; 50% likelihood that product will be delivered 30 days before April 30, 2023; and 30% likelihood that product will be delivered 30 days after April 30, 2023. How much should Noelydio determine as the amount of transaction price for this contract?

On January 01, 2022, Noelydio entered into a contract with Baby Lyra to build an item of specialized equipment for delivery on April 30, 2023. However, the exact delivery date is hard to estimate. The amount of consideration specified in the contract is P300,000, but the customer is willing to pay a higher price if delivered earlier (i.e., amount will be increased or decreased by P500 for each day, depending on whether the actual delivery date is before or after April 30, 2023). Below is the sensitivity analysis: 20% likelihood that product will be delivered on April 30, 2023; 50% likelihood that product will be delivered 30 days before April 30, 2023; and 30% likelihood that product will be delivered 30 days after April 30, 2023. How much should Noelydio determine as the amount of transaction price for this contract?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 7C: On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial...

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On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
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