Page 20 - 35. FR APRIL 22 MTP QP ANSWERS

Solution 5

(a) The following table shows the amount of income tax expense that is reported in each quarter:

Expected Total Income = 15,000 x 4 = ` 60,000
Expected Tax as per slabs = 20,000 x 20% + 40,000 x 40% = ` 20,000
Average Annual Income tax rate = 20,000/60,000 x 100 = 33.33%
Amount (`)

Q1 Q2 Q3 Q4
Profit before tax 15,000 15,000 15,000 15,000
Tax expense 5,000 5,000 5,000 5,000

(b) T Ltd. concludes that the modem and router are each distinct and that the arrangement includes three
performance obligations (the modem, the router and the internet services) based on the following
evaluation:
Criterion 1: Capable of being distinct
 C can benefit from the modem and router on their own because they can be resold for more than scrap

value.
 C can benefit from the internet services in conjunction with readily available resources – i.e. either the
modem and router are already delivered at the time of contract set- up, they could be bought from
alternative retail vendors or the internet service could be used with different equipment.
Criterion 2: Distinct within the context of the contract
 T Ltd. does not provide a significant integration service.
 The modem, router and internet services do not modify or customise one another.

 C could benefit from the internet services using routers and modems that are not sold by T Ltd.
Therefore, the modem, router and internet services are not highly dependent on or highly inter-
related with each other.

(c) Allocated price per unit (year) is calculated as follows:
Total estimated memberships is 175 members (Year 1 = 100; Year 2 = 50; Year 3 = 25) = 175
Total consideration is ` 12,00,000 {(100 x 7,500) + (50 x 6,000) + (25 x 6,000)}
Allocated price per membership is ` 6,857 approx. (12,00,000 / 175)
Basis on above, it is to be noted that although entity has collected ` 7,500 but revenue can be

recognised at ` 6,857 approx. per membership and remaining ` 643 should be recorded as contract
liability against option given to customer for renewing their membership at discount.

(d)

(i) If Mr. X controls or jointly controls A Limited, then Mr. X is a related party to A limited. B Limited will
be considered as related to A Limited when Ms. Y also has control, joint control or significant influence
over B Limited because Ms. Y is a domestic partner of Mr. X.

(ii) If Ms. Y controls or jointly controls B Limited, then Ms. Y is a related party to B limited. A Limited will
be considered as related to B Limited when Mr. X also has control, joint control or significant influence
over A Limited because Mr. X is a domestic partner of Ms. Y.
(iii) No, Significant influence does not lead to direct / indirect control between the A Ltd. and B Ltd. Hence,

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