Allocate the transaction price to performance obligations – Kayla’s background

information

I apologize for continuing to talk with you during lunch, but I really couldn't wait to move on to
step 4. I’ve already got a number of questions about how Kyber-Comm should allocate
transaction price to its contracts.

We've got some special terms for certain types of contracts, including discounts and variable
payments. There are also cases with subsequent changes in transaction price. This is
probably a challenging area of the Standard which I need to make sure I’ve got right&

Shall we order some food before I tell you more about these contracts Kyber-Comm has
entered into?”

Fact pattern for ‘Allocating the transaction price’ question (screen 2)

Kyber-Comm enters into a contract with a customer for the provision of internet services for
one year for $250 per month.

As part of the contract, Kyber-Comm provides that particular consumer with a 30% discount
coupon if the consumer subscribes for a one-year access to its pay-TV channel in the
following month.

Kyber-Comm has placed advertisements in the local newspapers offering a free 10%
discount on any new subscriptions to its pay-TV channel for a one-year access as part of its
seasonal promotion in the following month. The stand-alone one-year subscription price to
the pay-TV channel services is $4,200 (to be paid upfront).

Kyber-Comm estimates that there is a 60% probability that the consumer would redeem the
discount coupon. Assume there is no significant financing element in the contract.

Fact pattern for ‘Allocation of material right’ question (screen 4)

Kyber-Comm enters into a contract with a customer to sell three products: multiplexer,
router and optical fibres in exchange for $660.

Kyber-Comm will transfer control of each of those products at different points in time. The
multiplexer does not have a stand-alone selling price that is directly observable, but the
multiplexer has been sold before on its own within a relatively stable price range.

The stand-alone selling prices for the router and optical fibres are directly observable.
Furthermore, Kyber-Comm regularly sells these two products together for $310.

The table below shows the directly observable or estimated stand-alone selling prices of
the three products:

Product Stand-alone Selling Price

Multiplexer $350 (estimated)
Router $120
Optical fibre $200
Total $670
Fact pattern for ‘Allocation of variable consideration’ question (screen 6)

Kyber-Comm enters into a contract with a customer to transfer equipment and software
technology used in post-production editing, which the entity determines to represent two
performance obligations.

In terms of the contract, the stated price for the equipment is a fixed amount of $3,000, and the
price for the software technology is 5% of the customer’s future revenue derived from the use of
this technology.

Using the expected value method, Kyber-Comm estimates the royalties from the software
technology to be $20,000. The royalties vary entirely on the customer’s use of the software
which depends largely on the customer’s clientele and the nature of projects undertaken.

The estimated stand-alone selling price of the equipment and software technology is $8,000
and $15,000 respectively. Kyber-Comm transfers the equipment to the customer at contract
inception and transfers the software technology one month later.