5.3.1: Bundled Sales
- Page ID
- 100424
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)Telurama Inc. sells mobile telephones with two-year bundled airtime and data plans. The stand-alone selling price of the telephone is $600. The the airtime and data plan does not have an observable stand-alone selling price, but Telurama has used the adjusted market assessment approach to estimate the stand-alone selling price as $1,000. As the mobile telephone business is very competitive, Telurama is required to sell the bundled package for $1,400. Telurama has determined that the discount should be allocated proportionally to the two performance obligations. In this case, the revenue would be recognized as follows:
| Component | Calculation | Allocation | |
|---|---|---|---|
| Telephone | \([600 \div(600+1,000)] \times 1,400\) | $ | 525 |
| Airtime and data | \([1,000 \div(600+1,000)]\) | $ | 875 |
| Total | $ | 1,400 |
If the airtime and data plan was sold to different customer groups for a broad range of different prices, Telurama could use the residual approach instead, as the stand-alone selling price for this performance obligation would not be observable. With this approach, the value of the observable stand-alone selling price (the telephone) is subtracted from the total contract value to arrive at the value of the unobservable stand-alone selling price (the airtime and data plan). In this example, Telurama would recognize revenue as follows:
| Component | Calculation | Allocation | |
|---|---|---|---|
| Telephone | stand alone price | $ | 525 |
|
Airtime and data |
\(1,400 - 600 |
$ |
875 |
| Total | $ | 1,400 |
In either case, revenue will be recorded based on the allocation calculated above. The revenue for the telephone will be recorded immediately upon delivery to the customer, and the remaining amount relating to the airtime and data will be reported as unearned revenue that will be recognized over the term of the contract. The journal entry at the time of sale to record this transaction using the first example would look like this:
General Ledger
|
Date |
Account/Explanation |
PR |
Debit |
Credit |
|
|
Accounts receivable |
|
1,400 |
|
|
|
Sales revenue |
|
|
525 |
|
|
Unearned revenue |
|
|
875 |