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Tompson recently sold a machine for E100,000. Revenue related to the sale of the machine is recognised upon delivery to the customer's factory, and payment thereof is due promptly. Under the sales contract, Tompson has also committed to providing the customer with service and maintenance on the machine for 3 years at no additional charge. Tompson routinely sells the this type of machine for €90,000 on a stand alone basis, and it also offers a 3 year maintenance service on machines of this type for €30,000. It estimates that it will cost €10,000 to deliver the service and maintenace. The transaction price should be allocated as follows: a) £70,000 for the machine and £30,000 for the service b) £75,000 for the machine and £25,000 for the service c) €90,000 for the machine and £10,000 for the service d) €100,000 for the machine and £0 for the service

FINANCIAL ACCOUNTING

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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Tompson recently sold a machine for E100,000. Revenue related to the sale of the machine is recognised upon delivery to the customer's factory, and payment thereof is due promptly. Under the sales contract, Tompson has also committed to providing the customer with service and maintenance on the machine for 3 years at no additional charge. Tompson routinely sells the this type of machine for €90,000 on a stand alone basis, and it also offers a 3 year maintenance service on machines of this type for €30,000. It estimates that it will cost €10,000 to deliver the service and maintenace. The transaction price should be allocated as follows:

a) £70,000 for the machine and £30,000 for the service

b) £75,000 for the machine and £25,000 for the service

c) €90,000 for the machine and £10,000 for the service

d) €100,000 for the machine and £0 for the service

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