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 (SF

  • C exist and which rate is appropriate?
A No SFC; timing driven by service pattern.
B SFC exists; use customer’s 10% rate.
C SFC exists; use entity’s credit-adjusted 11% rate.
D SFC exists only on the final 20%; use risk-free rate.
E No SFC because total consideration is fixed.
Practice Next

Hey! Ask a query