The transaction price includes variable consideration. Which one of the following statements is reasonable?
Lawyers Defend U Inc. defends Clive in a civil court case. 80% of Lawyers Defend U Inc.'s fee is based on the positive outcome of the court case. There is a 75% chance that the court case will have a positive outcome and a 25% chance that it will not. Lawyers Defend U Inc. determines that the most likely amount is the method that better predicts the amount of consideration to which it will be entitled.
Rig Construction Ltd. constructs an oil rig for Oil & Gas Inc. and is entitled to a bonus if the rig is completed by a set date, but subject to escalating penalties for each day it is not. In considering the likelihood of the bonus or penalties Rig Construction Ltd. determines that there is a large number of possible outcomes and therefore uses the most likely amount to estimate variable consideration. 20
Creative Interiors Ltd. is commissioned to complete the interior design of the Duke of Melbourne's palace. Creative Interiors Ltd. is entitled to receive a bonus of MU900,000 if the interior design is completed on time or none at all if it is not. Creative Interiors Ltd. determines that the expected value method is the method that better predicts the amount of consideration to which it will be entitled.
Crisis Call Line Ltd. buys 1,000 telephones from Telecommunications Inc. at a fixed price per telephone. Crisis Call Line Ltd. has the ability to return the telephones to Telecommunications Inc. if they determine that they are not suitable for their national crisis line service. Given the price per phone is fixed the transaction price is fixed, i.e., Telecommunications Inc. has no variable consideration."
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