Page 11 - 34.2 FR MARCH 22 MTP ANSWER

asset under Ind AS 38.
Assessment of applicability of Ind AS 116 in the given scenario
At the inception of a contract, an entity shall assess whether the contract is or contains a lease. For the

purpose, a lease is defined as a contract, or part of a contract that conveys the right to control the use of
an identified asset for a period of time in exchange for consideration. This right to control the asset
throughout the period of use is emphasized ONLY if the customer has both (i) right to obtain substantially
all the economic benefits from the use of the identified asset, and (ii) the right to direct the use of the
identified asset.

In the given case, the contract gives the New Age Technology Limited only the right to access the Crystal
Systems Limited’s application software over the contract term, and hence the contract is not a lease
contract within the meaning of Ind AS 116.
Conclusion
The right to access the Crystal Systems Limited’s application software for a price over a specified period is a

service contract. If the Crystal Systems Limited pays amounts for which the services are yet to be received,
then the advance payment is a prepayment and an asset for the Crystal Systems Limited.

(b) As per para 81 of Ind AS 115
- a customer receives a discount for purchasing a bundle of goods or services if the sum of the stand-
alone selling prices of those promised goods or services in the contract exceeds the promised

consideration in a contract.
- except when an entity has observable evidence in accordance with paragraph 82 that the entire discount

relates to only one or more, but not all, performance obligations in a contract, the entity shall allocate a
discount proportionately to all performance obligations in the contract.
- the proportionate allocation of the discount in those circumstances is a consequence of the entity

allocating the transaction price to each performance obligation on the basis of the relative stand-alone
selling prices of the underlying distinct goods or services.

Amount to be recognised:
In this case, there are two separately identifiable performance obligations one being sale of the equipment

and second being maintenance contract for three years.
For recognition of revenue, relative stand-alone selling price of the individual components may be taken and
the consideration allocated in proportion of relative fair values, i.e. 4,85,500: 37,500* (i.e. 12,500 x 3). Hence,
the sale of equipment should be recognised at Rs. 4,64,149 [Rs. 5,00,000 x {4,85,500 / (4,85,500 +
37,500)}] when all other conditions for sale of the equipment are fulfilled and the revenue from

maintenance services of Rs. 35,851 [Rs. 5,00,000 x {37,500 / (4,85,500 + 37,500)}] should be the service
revenue recognised over a period of three years as per its stage of completion.

(c) Number of SARs = 80 Employees x 500 SARs = 40,000 SARs

34.17