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If a contract involves a significant financing component:____________.

A. the transaction amount should be based on the current sales price of goods or services.
B. the time value of money is used to determine the fair value of the transaction.
C. interest must be accrued on the current sales price of goods or services.
D. the time value of money is not required to determine transaction price, if the payment is more than a year.

User MrHohn
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2 Answers

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Answer:

B. the time value of money is used to determine the fair value of the transaction.

Step-by-step explanation:

The time value of money is important principal in order to identify receiving the money then on later date.

Since the contract is based on Financing, therefore, it is mandatory that the amount will be paid on later date.

User Mrtom
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1 vote

Answer:

The time value of money is used to determine the fair value of the transaction ( B )

Step-by-step explanation:

If a contract involves a significant financing component the time value of money is used to determine the fair value of the transaction and this is because the time value of money states that the money at hand ( available money ) is worth more than the identical sum of money in the future due to the earning capacity of the money.

therefore a contract involving a significant financing component ( present monetary component ) would have its fair value determined by the time value of money

User MidnightGun
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