Revenue for Telecoms
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104 | <strong>Revenue</strong> <strong>for</strong> <strong>Telecoms</strong> – Issues In-Depth<br />
| 5 Step 4: Allocate the transaction price to the per<strong>for</strong>mance obligations in the contract<br />
The 24-month contract includes 1,000 monthly minutes of voice and 1GB of data<br />
usage <strong>for</strong> a monthly fee of 80 (Service Package A). During the two‐year term,<br />
Customer C may decrease the service package to 500 monthly minutes of voice<br />
and 500MB of data usage <strong>for</strong> a monthly fee of 60 (Service Package B). Telco T also<br />
sells an ‘add-on’ package of 500 minutes of voice and 500MB of data usage <strong>for</strong><br />
20 per month that can be added or dropped monthly at the customer’s option.<br />
Customer C cannot reduce the service package below 60 without terminating the<br />
contract and incurring substantive termination penalties. In addition, Customer C<br />
can only reduce the service package in the month following that in which he<br />
provides notice.<br />
Note that this example does not assess whether the contract includes a significant<br />
financing component.<br />
The stand-alone selling prices of the handset and the service packages are as<br />
follows.<br />
Per<strong>for</strong>mance obligation<br />
Stand-alone<br />
selling prices<br />
Handset 600<br />
Service Package A (monthly fee)<br />
(1,000 monthly minutes of voice; 1GB of data usage)<br />
Service Package B (monthly fee)<br />
(500 monthly minutes of voice; 500MB of data usage)<br />
After analyzing the terms and conditions of the contract, Telco T concludes that<br />
using the contractual minimum commitment to determine the transaction price<br />
would be appropriate.<br />
Using this approach, the transaction price is determined using 80 <strong>for</strong> Package<br />
A in the first month, then 60 per month <strong>for</strong> Service Package B. There<strong>for</strong>e, the<br />
transaction price is 1,660 (200 <strong>for</strong> the handset; 1,460 (80 + 60 x 23 months) <strong>for</strong><br />
the services). This amount is allocated to the handset and the service as follows.<br />
75<br />
55<br />
Home<br />
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independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.<br />
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