QUESTION 38 Illustration 38–Customer-provided goods or services MS Limited is a manufacturer of cars. It has a supplier of steering systems – SK Limited. MS Limited places an order of 10,000 steering systems on SK Limited. It also agrees to pay $ 25,000 per steering system and contributes tooling to be used in SK’s production process. The tooling has a fair value of $ 2 million at contract inception. SK Limited determines that each steering system represents a single performance obligation and that control of the steering system transfers to MS Limited upon delivery. SK Limited may use the tooling for other projects and determines that it obtains control of the tooling. Determine the transaction price.

Solution

In this scenario, the transaction price for SK Limited includes the cash consideration that MS Limited promises to pay as well as the non-cash consideration (the tooling) provided by MS Limited.

The cash consideration that MS Limited agrees to pay is $25,000 per steering system for a total of 10,000 systems, which totals to $250 million ($25,000 * 10,000).

The non-cash consideration, the tooling, has a fair value of $2 million at the inception of the contract.

Therefore, the transaction price that SK Limited would recognize for the sale of the steering systems is the sum of the cash and non-cash considerations, which equals $252 million ($250 million + $2 million).

This is under the assumption that the tooling is distinct and that the fair value of the tooling accurately reflects the price of the tooling if it were sold separately (based on IFRS 15.66-67).

Please also note that in determining the transaction price, SK Limited would need to consider any variable consideration or significant financing components in the contract, but these are not mentioned in the given scenario.





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