Y Limited sells a large variety of second hand cars to customers, both for cash and on instalment sale. The financial year end of Y Limited is 31 December 2017.

The details of the contract are:

• The second-hand cars are sold to customers on an instalment sales agreement over six years. The instalments are payable equally on a monthly basis.
• The instalment sale agreement with the customer includes the sale of the car, a six-year service plan and third party insurance for three years.
• Joe Soap, a customer, purchased a car from Y Limited and signed the instalment sale agreement on 1 December 2017. Joe is required to pay a monthly instalment of R4 000. Appropriate customer credit checks were conducted to minimise the risk of non-collection of amounts due.

The following details relate to stand-alone selling prices (considered to be material) for each item included in the agreement with Joe Soap:

Car	300 000
Service plan	100 000
Third party insurance	45 000

The finance director is unsure with the new standard on IFRS 15 Revenue from Contracts with Customers, and how to account for revenue on the instalment sale agreement with Joe Soap.

Assume that the financing component is deemed to be insignificant for the instalment sale agreement.

Required

Write a letter to the financial director explaining how to account for revenue of the instalment sale agreement. Include in your discussion the steps for revenue recognition and calculate the revenue that should be recognised.