Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 105
5.2 Allocate the transaction price |
Performance obligation
Stand-alone
selling
prices
Transaction
price
allocation
Calculation
Handset 600 513 [(600 ÷ 1,940) x
1,660]
Service in Month 1 (based
on Service Package A)
Service in remaining
23 months (based on
Service Package B)
75 64 [(75 ÷ 1,940) x
1,660]
1,265 1,083
(approx 47 per
month)
Total (for purposes of
allocation) 1,940 1,660
[(1,265 ÷ 1,940)
x 1,660]
This approach views the ability to upgrade to Service Package A as a customer
option or right to purchase additional distinct services for 20 per month (see
Section 8). Accordingly, assuming no change to the plan, service revenue
recognized in Month 2 is 67 (47 + 20).
Example 42 – Allocation of the transaction price in a wireless
contract: Contracted service amount
Continuing Example 30 in Step 3 (see 4.1). Fact pattern is repeated here for
convenience.
Telco X enters into a 24-month wireless voice and data services contract with
Customer F. At contract inception, Telco X transfers a handset to Customer F, and
Customer F pays 200 to Telco X, which is less than the stand-alone selling price of
the handset.
The 24-month contract includes 800 monthly minutes of voice and 1GB of data
usage for a monthly fee of 70. During the two-year term, Customer F cannot
change the service package without terminating the contract and incurring
substantive termination penalties.
However, Telco X has in limited circumstances allowed customers to downgrade
their service without paying a termination penalty.
Note that this example does not assess whether the contract includes a
significant financing component.
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