Canucks Inc., a software company sells new accounting software and user support bundled together. The fair value of the software is $1,500 and the fair value of the user support is $500. The user support is valid for a period of 12 months from the date of software purchase. To be able to compete with a competitor's offering, Loon decided to sell the bundle at a discount for $1,800.
During its first month of sales, 100 units of this software bundle were sold at the discounted price, and expenses were $50,000.
Instructions
a) Calculate the sale price that should be allocated to each component of the bundle using the adjusted market assessment approach.
b) Calculate the sale price that should be allocated to each component of the bundle using the residual approach.
c) Assuming that the relative fair value method is used and income tax rate is 30% calculates the net income applicable to Loon's first month of sales.