On January 1, Year N, an entity (with a December 31 year-end) enters into a...
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Accounting
On January 1, Year N, an entity (with a December 31 year-end) enters into a contract with a customer to sell a product for consideration of USD100 per unit for a period of one year.
If the customer purchases more than 75 units, the consideration will be USD80 per unit (this reduction will be applied retrospectively, so that the price of all units purchased will be USD80 per unit).
Initially, the entity does not believe that the customer will purchase more than 75 units.
The purchase rate is as follows:
January N: 10 units
February N: 15 units
March N: 15 units
Work to be done:
Determine the fixed and variable components of the contract.
What is the amount of revenue to be recognized at the end of March? Justify your assumptions.
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