On 1 January 20X5 Magpie Co delivered goods to a customer, who agreed to pay $2,000,000 on 31 December 20X6. The arrangement contains a significant financing component, and the appropriate discount rate is 10% a year. What revenue should be recognised on delivery? (Use unrounded discount factors and round your final answer to the nearest dollar.)

Correct answer: C) $1,652,893

Explanation

The financing component is removed by discounting the consideration: $2,000,000 / 1.10^2 = $1,652,893, calculated with an unrounded discount factor and rounded to the nearest dollar, which is recognised as revenue when control passes on delivery. The $347,107 difference is recognised as finance income over two years, starting with $165,289 in 20X5.