The key issue with connection fees received for connecting a customer to a telecommunications network is:

Question

BlackTom AI · Accepted Answer

When approaching the question about the key issue with connection fees for linking a customer to a telecommunications network, first identify what the fee represents and how revenue recognition principles apply to it.
Option A: 'whether they were provided by the principal or an agent.' This consideration matters in some revenue arrangements, especially for commission-based models, but for connection fees the essential issue is not primarily about agency vs principal who provides the service; it's about timing and pattern of revenue recognition rather than the nature of the intermediary.
Option B: 'whether the revenue is recognised in full upfront or over an actual or implied service period.' This is the core concern. Connection fees can be paid at contract inception or amortized over the expected period of service, depending on whether there is a material right to access the network or ongoing services. Thus, the key accounting question centers on how and when to recognize the revenue over the service period rather than merely at contract inception.
Option C: 'whether the provision of the handset is a separate transaction.' While bundled offerings sometimes include devices, the fundamental issue with connection fees is not primarily about isolating device transactions from network service revenue; it focuses on service recognition timing, though device components may require separate revenue treatment in some cases.
Option D: 'whether the distribution channels used by the telecommunications companies are acting as agents or acting in their own rights as principals.' Similar to Option A, this questions the role of intermediaries. While material to certain revenue arrangements, it does not address the central issue of recognizing connection fee revenue over the service period.
Overall, the pivotal concept is the timing of revenue recognition tied to the service period, which is best captured in Option B. The other choices shift focus to agency status, bundling with devices, or channel roles, which are secondary considerations or separate accounting questions rather than the main recognition principle for connection fees.

22420 Accounting Standards and Regulations - Spring 2025 Checkpoint week 2

The key issue with connection fees received for connecting a customer to a telecommunications network is:

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