Question

When the price of a good or service is dependent on future events, companies estimate the amount of variable consideration using either the EXPECTED VALUE METHOD or the MOST LIKELY AMOUNT method. Which of the following indicates that THE MOST LIKELY AMOUNT METHOD should be used?

1) The future events are highly uncertain
2) The expected value method is more accurate
3) The most likely amount is difficult to estimate
4) The variable consideration is constant

Answer 1

The most likely amount method should be used to estimate variable consideration when future events are highly uncertain and the most likely amount is difficult to estimate.

Step-by-step explanation:

The most likely amount method should be used to estimate the amount of variable consideration when the future events are highly uncertain and the most likely amount is difficult to estimate. In this method, companies consider the most probable outcome based on the available information and make their estimation accordingly. This approach is suitable when there is a lack of reliable data and when the future events are highly unpredictable.