QUESTION 3
IT Guru Limited (trading as Gurus) is an entity formed by two friends who met while
doing B Com information system at the University of the Western Cape. Guru, entered
into a contract with a customer to transfer a software licence, perform an installation
service and provide unspecified software updates and technical support (online and
telephone) for a two-year period. The entity sells the licence, installation service and
technical support separately. The installation service includes changing the web
screen for each type of user (for example, marketing, inventory management and
information technology). The installation service is routinely performed by other
entities and does not significantly modify the software. The software remains functional without the updates and the technical support.
The accountant of Guru Limited concluded that the promises in the contract are both capable of being distinct and distinct in the context of the contract. Based on this assessment, the accountant correctly identified four performance obligations in the contract for the following goods or services:
• The software license.
• An installation service.
• Software updates; and 200 000
• Technical support.
The contract price was set at R1 700 000 payable in two years from the contract date. Guru normally sells these products or services separately at the prices indicated below.
Product Price Rand
Software licence R500 000
Installation R150 000
Software updates R200 000
Technical support R175 000
The appropriate discount rate was correctly calculated as 10% per annum. Assume
any significant financing component was significant.
Required
(a) Calculate and allocate the transaction price for the contract with the customer. 10 marks