Question

Under ASC 606, the transaction price generally should be adjusted for the effect of the time value of money when

Answer 1

Answer:

B. The selling price of the product and the consideration promised in the contract differ significantly.

Explanation:

"While determining the transaction price, an entity shall adjust the amount of consideration with respect to the time value of money, if the timing of payment to be made by customer under the contract provides some significant benefit of financing to the customer or the entity for the transfer of goods or services to the customer. The Significant financing benefit could be explicit or implicit in the contract.

The idea behind the significant financing component is that entity should consider the revenue based on the price that a customer would have paid at the time of transferring the goods or services to the customer by the entity i.e. Cash Selling Price (If the payment was made immediately)."

Reference: Prasenjit. “ASC 606: Step 3 – Determining the Transaction Price.” RevGurus, 25 Mar. 2019