Answered: The customer, an operator of cinemas,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

An entity, a movie distribution company, licenses Movie XYZ to a customer. The customer, an operator of cinemas, has the right to show the movie in its cinemas for six weeks. In exchange for providing the license, the entity will receive a portion of the operator’s ticket sales for Movie XYZ. Which of the following statements is incorrect?

a. The entity shall estimate the variable consideration, subject the estimate to the “constraining’ principle of PFRS 15, and recognize the resulting amount at the point in time when the license is transferred to the customer.

b. The transaction price is a variable consideration.

c. The fact that the performance obligation in the contract is satisfied over time or at a point in time is irrelevant when determining how revenue is recognized on the contract.

d. The only performance obligation in the contract is the promise to grant the license.

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