Question:
Refer to the situation described in BE 5–12. How would your answer change if Orange reported under
IFRS?
Answer:
Orange has separate sales prices for the two parts of LearnIt-Plus, so the company can base its estimates
of the fair value of those parts according to their relative selling prices. LearnIt will be allocated $200 x
[$150 ÷ ($150 + 100)] = $120, and that revenue will be recognized upon delivery of the LearnIt software.
LearnIt Office Hours will be allocated $200 x [$100 ÷ ($150 + 100)] = $80, and that revenue will be
deferred and recognized over the life of the one-year period in which the Office Hours are delivered.
If LearnIt were not sold separately, the accounting would be the same. Orange would estimate the fair
value of LearnIt Office Hours to be $100 and allocate revenue in the same fashion as it did when that
product was sold separately. (VSOE is not required under IFRS).
Refer to the situation described in BE 5–12. How would your answer change if Orange reported under
IFRS?
Answer:
Orange has separate sales prices for the two parts of LearnIt-Plus, so the company can base its estimates
of the fair value of those parts according to their relative selling prices. LearnIt will be allocated $200 x
[$150 ÷ ($150 + 100)] = $120, and that revenue will be recognized upon delivery of the LearnIt software.
LearnIt Office Hours will be allocated $200 x [$100 ÷ ($150 + 100)] = $80, and that revenue will be
deferred and recognized over the life of the one-year period in which the Office Hours are delivered.
If LearnIt were not sold separately, the accounting would be the same. Orange would estimate the fair
value of LearnIt Office Hours to be $100 and allocate revenue in the same fashion as it did when that
product was sold separately. (VSOE is not required under IFRS).
