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      Question

      Customer pays 60% upfront, 20% on customization

      completion (month 5), and 20% at end of PCS (month 24). Market borrowing rate for the customer is 10% p.a.; TechServe’s credit-adjusted rate is 11% p.a. Payment timing is a negotiated convenience for the customer. Does an Significant Financing Component (SFC) exist and which rate is appropriate?
      A No SFC; timing driven by service pattern. Correct Answer Incorrect Answer
      B SFC exists; use customer’s 10% rate. Correct Answer Incorrect Answer
      C SFC exists; use entity’s credit-adjusted 11% rate. Correct Answer Incorrect Answer
      D SFC exists only on the final 20%; use risk-free rate. Correct Answer Incorrect Answer
      E No SFC because total consideration is fixed. Correct Answer Incorrect Answer

      Solution

      Front-loaded and back-ended payments over ~24 months create a financing benefit. Ind AS 115 requires adjusting for SFC using a rate reflecting the characteristics of the financing—typically the entity’s credit-adjusted rate at contract inception. The pattern here indicates a financing component, not merely alignment with transfer of goods/services.

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