Question

CompuBlast System provides bundled computer services offering to McGiver Lmtd. This bundled service includes an initial connection fee for one-year network access to CompuBlast plus two ongoing services. These services are (1) Network Access for 1 year and (2) 24-7 Helpdesk Access for 1 year.

McGiver pays the $75,000 upfront, on July 1, 2023. CompuBlast determines that, if it were to charge a separate fee for each service sold separately, the market fee would be:
Connection fee $ 15,000
Access fee $ 75,000
Troubleshooting $ 25,000
The end of CompuBlast’s reporting period is June30.

Required
Prepare the journal entries to record this transaction in accordance with IFRS 15 for the year ended June 30, 2023, assuming McGiver applies the relative fair value approach. Show all Calculations.

Answer 1

To record the transaction in accordance with IFRS 15 using the relative fair value approach, you'll need to allocate the total payment of $75,000 to the individual services provided by CompuBlast based on their standalone selling prices. Here's how you can prepare the journal entries:

1. Allocate the payment to the individual services using the relative fair value approach:

Connection Fee: $15,000 / ($15,000 + $75,000 + $25,000) = $15,000 / $115,000 = 13.04%

Network Access Fee: $75,000 / ($15,000 + $75,000 + $25,000) = $75,000 / $115,000 = 65.22%

Troubleshooting Fee: $25,000 / ($15,000 + $75,000 + $25,000) = $25,000 / $115,000 = 21.74%

1. Record the journal entries:

July 1, 2023:

a. To record the initial payment from McGiver:

Debit Cash (Assets) $75,000

Credit Unearned Revenue (Liabilities) $75,000

June 30, 2023 (End of reporting period):

b. To recognize revenue for the Connection Fee (13.04% of $75,000):

Debit Unearned Revenue (Liabilities) $9,780

Credit Revenue - Connection Fee (Income) $9,780

c. To recognize revenue for the Network Access Fee (65.22% of $75,000):

Debit Unearned Revenue (Liabilities) $48,915

Credit Revenue - Network Access Fee (Income) $48,915

d. To recognize revenue for the Troubleshooting Fee (21.74% of $75,000):

Debit Unearned Revenue (Liabilities) $16,305

Credit Revenue - Troubleshooting Fee (Income) $16,305

These journal entries follow the IFRS 15 guidance for recognizing revenue based on the relative fair value approach, which allocates the total consideration to the individual performance obligations based on their standalone selling prices.

Step-by-step explanation: