The total contract price (step 3) in the 5 step revenue recognition model is a.

Question

The total contract price (step 3) in the 5 step revenue recognition model is

a. not equal to the sum of the allocations to performance obligations in step 4

b. always equal to the sum of the performance obligation stand alone prices

c. determined by the seller and buyer in the contract agreement process (step 1)

d. generally greater than the sum of the performance obligation stand alone prices

e. not used in the process of recognizing revenue

a. not equal to the sum of the allocations to performance obligations in step 4

b. always equal to the sum of the performance obligation stand alone prices

c. determined by the seller and buyer in the contract agreement process (step 1)

d. generally greater than the sum of the performance obligation stand alone prices

e. not used in the process of recognizing revenue

Explanation / Answer

Answer is

a. not equal to the sum of the allocations to performance obligations in step 4

Reason in step 3 the contract price is valued based on the all obligations to be satisfied and the value is discounted with time value and hence it cannot be equal to the sum of the allocations to the value of step 4.

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