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A company entered into two separate contracts with a customer on the same day: one for the sale of a product, and the second for operating services to be provided by the company. Each contract contained a stated price for the product or service requested. The company can identify separately the cost of the product and services and has determined that fair value of the products and services is the selling price (VSOE). Under both US GAAP and IFRS, which of the following statements would be correct regarding these transactions?

A) Recognize the contractually stated revenue upon delivery of the product and services.

B) Allocate the stated revenue in the two contracts based on evidence of the fair value of the components and recognize the revenue upon delivery of the product or services.

C) Since management knows the selling price and cost of the product and services, revenue should be recognized proportionately upon delivery of the product and services to equalize the recognized profit margin.

D) Allocate the stated revenue in the two contracts based on evidence of the fair value objectively obtained from a third-party competitor and recognize the revenue upon delivery of the product or services.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9437707

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