Question

The transaction price includes variable consideration. which one of the following statements is reasonable?

a.creative interiors ltd. is commissioned to complete the interior design of the duke of melbourne’s palace.
b.creative interiors ltd. is entitled to receive a bonus of mu900,000 if the interior design is completed on time or none at all if it is not.
c.creative interiors ltd. determines that the expected value method is the method that better predicts the amount of consideration to which it will be entitled.
d.rig construction ltd. constructs an oil rig for oil

Answer 1

The reasonable statement is option C: Creative Interiors Ltd. determines that the expected value method is the method that better predicts the amount of consideration to which it will be entitled.

Step-by-step explanation:

The statement that is reasonable in this case is option C: Creative Interiors Ltd. determines that the expected value method is the method that better predicts the amount of consideration to which it will be entitled.

The concept of variable consideration refers to the element of a transaction price that may change based on future events or outcomes. In this case, the bonus of MU900,000 for completing the interior design on time represents variable consideration. To determine the amount of consideration expected, the company uses the expected value method, which assesses all possible outcomes and their probabilities.

Options A and B are not reasonable because they do not address the concept of variable consideration or the method used to predict the amount of consideration. Option D is not relevant to the question.