Chris Ltd sells equipment and a service plan to Customer A. Chris charges Customer A $40,000 for the equipment and service for one year. The customer owns the equipment from the date of the contract. The service is an optional extra that the customer can purchase.

Customer A pays the full amount of $40,000 at the start of the contract on 1 July 2019. Chris Ltd determines that, if it were to charge a separate price for the equipment and service, the cost would be:

Equipment $30,000

Service $15,000

Required:

i) Explain why there are two performance obligations in this contract, in accordance with AASB 15 Revenue from contracts with customers. (2 marks)

ii) Allocate the transaction price to the two performance obligations assuming Chris applies the stand alone selling price approach. Show workings. (2 marks)

iii) Explain when Chris Ltd will satisfy each performance obligation and therefore recognise the revenue for each performance obligation. (2 marks)

iv) Prepare the journal entries to record this transaction in accordance with AASB 15 for the month of July 2019. Show all workings. (2 marks)

v) Explain what the transaction price would be, if Customer A was to pay for the contract on 30 June 2020. Assume all other facts are the same and that an appropriate discount rate to apply is 5%. (2 marks)