Grant Limited enters into a contract with a customer to sell a machinery. The machinery is transferred to the customer when the contract is signed.…

However, the contractual interest rate of 8% is significantly lower than the market rate of 10% at which Grant Limited borrows for similar transactions. As per para 61 of Ind AS 115, the transaction price must be adjusted for the time value of money using the market rate of interest that is 10%. Accordingly, the transaction price would be = 2,50,438 x 3.79 = 9,49,160. This amount will be recognised as revenue at contract inception and the difference of the sale proceeds of 10,00,000 and the transaction price of 9,49,160 i.e.50,800 will be recognised as interest income over the five-year period. (ii) Analysis of the customer's offer of cash price of 9,65,000 instead of payment machinery in five annual instalments. Although the present value of the instalment payments is 9,49,160, the customer has offered a higher cash price of 9,65,000. Acceptance of the cash price is commercially beneficial as it not only exceeds the discounted transaction price but also avoids the complexities of a significant financing component, reduces credit and collection risks and strengthens cash flows and liquidity. Therefore, Grant Limited should accept the customer's offer of the cash price of 9,65,000 which is higher than the discounted transaction price of 9,49,160. It is consistent with Ind AS 115 and is also financially and commercially advantageous.