Contracts with Customers – NBC Institute

FR – May 2020 – L2 – Q2a – Revenue Recognition under IFRS 15

Determine the appropriate accounting treatment for a sales transaction with a free two-year maintenance contract under IFRS 15.

Question

Ejura Ltd (Ejura) is a manufacturing and retail company that prepares financial statements in accordance with International Financial Reporting Standards (IFRS) up to 31 December each year.

In order to generate or improve sales on one of its older products, Ejura offered a promotion named ‘something for free.’ The promotion included free maintenance services for the first two years. On 1 October 2019, under the promotional offer, Ejura sold goods to a supermarket chain for GH¢4.4 million. A two-year maintenance contract would normally be sold for GH¢0.5 million, and the list price of the product would normally be GH¢5 million. The transaction has been included in revenue at GH¢4.4 million.

Required:
In accordance with IFRS 15: Revenue from Contracts with Customers, justify the appropriate accounting treatment for the above transaction in the financial statements of Ejura for the year ended 31 December 2019.

Answer

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Tags: Contracts with Customers, Deferred Income, IFRS 15, Revenue
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2020

CR – Nov 2021 – L3 – Q2b – IFRS 15: Revenue from Contracts with Customers

Determine how Barikisu Ltd should account for revenue and costs related to a construction contract with a customer under IFRS 15.

Question

On 1 January 2020, Barikisu Ltd (Barikisu) entered into a contract with a customer to construct a specialised building for a consideration of GH¢2 million plus a bonus of GH¢0.4 million if the building is completed within 18 months. The estimated cost to construct the building is GH¢1.5 million. If the customer terminates the contract, Barikisu can demand payment for the cost incurred to date plus a mark-up of 30%. However, on 1 January 2020, due to factors outside of its control, such as the weather and regulatory approval, Barikisu is not sure whether the bonus will be achieved.

As at 31 December 2020, Barikisu has incurred a cost of GH¢1.0 million. They are still unsure as to whether the bonus target will be met. Therefore, Barikisu decided to measure progress towards completion based on the cost incurred. To date, Barikisu has received GH¢1 million from the customer.

Required:

Recommend to the directors of Barikisu how this transaction should be accounted for in the financial statements for the year ended 31 December 2020 in accordance with relevant International Financial Reporting Standards (IFRS).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contracts with Customers, IFRS 15, Performance Obligations, Progress Measurement, Revenue Recognition, Variable Consideration
Level: Level 3

Topic: IFRS 15: Revenue from contracts with customers
Series: NOV 2021

FR – May 2020 – L2 – Q2a – Revenue Recognition under IFRS 15

Determine the appropriate accounting treatment for a sales transaction with a free two-year maintenance contract under IFRS 15.

Question

Ejura Ltd (Ejura) is a manufacturing and retail company that prepares financial statements in accordance with International Financial Reporting Standards (IFRS) up to 31 December each year.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contracts with Customers, Deferred Income, IFRS 15, Revenue
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2020

CR – Nov 2021 – L3 – Q2b – IFRS 15: Revenue from Contracts with Customers

Determine how Barikisu Ltd should account for revenue and costs related to a construction contract with a customer under IFRS 15.

Question

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contracts with Customers, IFRS 15, Performance Obligations, Progress Measurement, Revenue Recognition, Variable Consideration
Level: Level 3

Topic: IFRS 15: Revenue from contracts with customers
Series: NOV 2021

Question Tag: Contracts with Customers

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FR – May 2020 – L2 – Q2a – Revenue Recognition under IFRS 15

Determine the appropriate accounting treatment for a sales transaction with a free two-year maintenance contract under IFRS 15.

CR – Nov 2021 – L3 – Q2b – IFRS 15: Revenue from Contracts with Customers

Determine how Barikisu Ltd should account for revenue and costs related to a construction contract with a customer under IFRS 15.

FR – May 2020 – L2 – Q2a – Revenue Recognition under IFRS 15

Determine the appropriate accounting treatment for a sales transaction with a free two-year maintenance contract under IFRS 15.

CR – Nov 2021 – L3 – Q2b – IFRS 15: Revenue from Contracts with Customers

Determine how Barikisu Ltd should account for revenue and costs related to a construction contract with a customer under IFRS 15.

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FR – May 2020 – L2 – Q2a – Revenue Recognition under IFRS 15

Determine the appropriate accounting treatment for a sales transaction with a free two-year maintenance contract under IFRS 15.

You're reporting an error for "FR – May 2020 – L2 – Q2a – Revenue Recognition under IFRS 15"

CR – Nov 2021 – L3 – Q2b – IFRS 15: Revenue from Contracts with Customers

Determine how Barikisu Ltd should account for revenue and costs related to a construction contract with a customer under IFRS 15.

You're reporting an error for "CR – Nov 2021 – L3 – Q2b – IFRS 15: Revenue from Contracts with Customers"

FR – May 2020 – L2 – Q2a – Revenue Recognition under IFRS 15

Determine the appropriate accounting treatment for a sales transaction with a free two-year maintenance contract under IFRS 15.

You're reporting an error for "FR – May 2020 – L2 – Q2a – Revenue Recognition under IFRS 15"

CR – Nov 2021 – L3 – Q2b – IFRS 15: Revenue from Contracts with Customers

Determine how Barikisu Ltd should account for revenue and costs related to a construction contract with a customer under IFRS 15.

You're reporting an error for "CR – Nov 2021 – L3 – Q2b – IFRS 15: Revenue from Contracts with Customers"

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