ANSWER 14

The vendor considers the approach which will better predict the amount of consideration to which it will be entitled, and concludes that the expected value method should be used. Under this method, it is estimated that a 40% price concession will apply, meaning that the estimated transaction price is $ 60,000 ($ 60 x 1,000 units).

In addition, the vendor considers the requirements for constraining the estimate of variable consideration. This is in order to determine whether the transaction price can be the estimated amount of $ 60,000. In this scenario, the vendor determines that the ultimate amount of consideration is highly variable and susceptible to factors outside its control, and that there is a wide range of possible price concessions that will need to be offered to the distributor. Consequently, the vendor cannot use its estimate of $ 60,000 because it is unable to conclude that it is highly probable that there will not be a significant reversal in the cumulative amount of revenue that has been recognised.

Although historic information shows that price concessions of 20-60% have been given in the past, current market information indicates that a price concession of 15-50% will be needed for the current transaction. The vendor has carried out an analysis of past prices and can demonstrate that they were consistent with the current market information that was available at that time. Consequently, it is concluded that it is highly probable that a significant reversal in the cumulative amount of revenue recognised will not occur if a transaction price of $ 50,000 is used.

Consequently, the vendor recognizes revenue of $ 50,000 on 1 January 2018, and reassesses its estimates of the transaction price at each subsequent reporting date until the uncertainty has been resolved.