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the residual value, which is 60 % of its fair value at the date of its acquisition. Accordingly, the patent will be
amortised over its useful life of 5 years, with a residual value equal to 60% of its fair value at the date of its
acquisition. The patent will also be reviewed for impairment in accordance with Ind AS 36. Therefore, the

accounting policy of amortising the asset over a period of 15 years considering its residual value of Zero is not
in accordance with Ind AS 38.
Computation of correct amount of residual value and annual amortization:
Rs.
Cost of Intangible asset 12,00,000

Residual value (60% of Rs. 12,00,000) 7,20,000
Depreciable value of intangible asset (12,00,000 – 7,20,000) 4,80,000
Useful life 5 years
Annual amortisation (4,80,000 / 5) Rs. 96,000 p.a.

Solution 13
Paragraph B40 of Ind AS 115, inter alia, states that, “if in a contract, an entity grants a customer the option
to acquire additional goods or services, that option gives rise to a separate performance obligation only if the

option provides a material right to the customer that it would not receive without entering into that contract”.
Further, paragraph B41 states that if a customer has the option to acquire an additional good or service at a
price that would reflect the stand-alone selling price for that good or service, that option does not provide the
customer with a material right even if the option can be exercised only by entering into a previous contract. In

those cases, the entity has made a marketing offer that it shall account for in accordance with this Standard
only when the customer exercises the option to purchase the additional goods or services.
In the given case, the customer does get a material right by way of a discount of Rs. 500 for every 100 points
that he would not receive without the previous stay in that resort. Thus, the customer in effect pays the
entity in advance for future goods and the entity recognises revenue when the goods are transferred.
According to paragraph B42, paragraph 74 requires an entity to allocate the transaction price to performance

obligations on a relative stand-alone selling price basis. If the standalone selling price for a customer‖s option
to acquire additional goods or services is not directly observable, an entity shall estimate it on the basis of
percentage discount the customer may obtain upon exercising the option and the likelihood of the option
getting exercised.
In accordance with above, an entity shall account for award credit as a separate performance obligation of the

sales transactions in which they are initially granted. The value of the consideration the entity expects to be
entitled in respect of the initial sale shall be allocated between the award credits and the other components
of the sale.
In the current case, the standalone selling price of the 100 points is Rs. 500. A Ltd. should allocate the fair
value of the consideration (i.e. Rs. 10,000) between the points and the other components of the sale as Rs.
476 (500/10,500 x 10,000) and Rs. 9,524 (10,000/10,500 x 10,000) respectively in proportion of their standalone

selli ng price. Since A Ltd. supplies the awards itself (i.e. it acts as a principal), it should recognize Rs. 476
as revenue when points are redeemed.

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