Company Z is a developer and manufacturer of defence systems that is primarily a Tier -|| supplier of parts and integrated systems to original equipment manufacturers (OEMs) in the commercial markets. Company Z enters into a contract with Company X for the development and delivery of 5,000 highly technical, specialized missiles for use in one of Company X's platforms.

As a part of the contract. Company X has agreed to pay Company Z for their cost plus an award fee up to 100 crore. The consideration will be paid by the customer related to costs incurred near the time Company Z incurs such costs. However, the '100 crore award fee is awarded upon successful completion of the development and test fire of a missile awarded upon successful completion of the development and test fire of a missile to occur in 16 months from the time the contract is executed. The contract specifies Company Z will earn up to 100 crore based on Company X's assessment of Company Z's ability to develop and manufacture a missile that achieves multiple factors, including final weight, velocity, and accuracy.

Partial award fees may be awarded based on a pre-determined scale based on their success.

Assume Company Z has assessed the contract under Ind AS 115 and determined the award fee represents variable consideration. Based on their assessment, Company Z has estimated a total of 80 crore in the transaction price related to the variable consideration pursuant to guidance within Ind AS 115. Further, the entity has concluded it should recognize revenue over time for a single performance obligation using a cost-to- cost input method.

Analyse whether there is any significant financing component in the contract or not.

Answer rating: 100% (QA)

A contract with a customer will not have a significant financing component if it i... View the full answer