Question Tag: Revenue Recognition

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

  • 8 Marks

CR – May 2023 – L3 – Q5a – Emerging Trends in Corporate Reporting

Discuss four financial reporting issues companies should consider due to COVID-19.

Most regulatory authorities in Nigeria, such as the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), and Federal Inland and State Internal Revenue Services, issued conditional relief for meeting reporting deadlines for filing annual and other returns required by law during the pandemic.

However, companies still need to monitor further reporting updates and evaluate the current and potential effects that COVID-19 could have on their financial reporting.

Required:

Discuss FOUR financial reporting issues that should be considered by companies as a consequence of COVID-19. (8 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – May 2023 – L3 – Q5a – Emerging Trends in Corporate Reporting"

  • 10 Marks

CR – May 2023 – L3 – Q4a – Revenue Recognition (IFRS 15)

Discuss the criteria for a contract to fall under IFRS 15 for revenue recognition.

There has been significant divergence in practice over the recognition of revenue, mainly because International Financial Reporting Standards (IFRSs) contain limited guidance in certain areas. The International Accounting Standards Board (IASB), as a result of its joint project with the US Financial Accounting Standards Board (FASB), has issued IFRS 15 – Revenue from Contracts with Customers.

IFRS 15 sets out a five-step model, which applies to revenue earned from a contract with a customer with limited exceptions, regardless of the type of revenue transaction or the industry. Step one in the five-step model requires the identification of the contract with the customer and is critical for the purpose of applying the standard. The remaining four steps in the standard’s revenue recognition model are irrelevant if the contract does not fall within the scope of IFRS 15.

Required:

Discuss the criteria which must be met for a contract with a customer to fall within the scope of IFRS 15. (10 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – May 2023 – L3 – Q4a – Revenue Recognition (IFRS 15)"

  • 15 Marks

CR – Nov 2021 – L3 – Q5 – Revenue Recognition (IFRS 15)

Analyze the impact of early revenue recognition, responsibilities of accountants, and risks of improper disclosure in financial reporting.

Accountants in business who are responsible for the preparation of financial information must ensure that the information they prepare is technically correct, completely disclosed without any omission, and also report the substance of the transaction. However, accountants are usually faced with the danger of influence from senior managers to present figures that inflate profit or assets or understate liabilities. This always puts accountants in a difficult position. This is the situation that the Chief Accountant of Fola PLC found himself.

Fola PLC has December 31 as its year-end, and the managing director (MD) feared that the forecast of 2020 profitability goals would not be reached. Therefore, when Fola PLC received a large order on December 30, the MD immediately directed that the Chief Accountant should record it as revenue for the period. This order represents about 13% of Fola PLC’s revenue. However, the inventory control department did not separate the goods for shipment until January 1, 2021. Separated goods are usually not included in the inventory because they have been sold. Physical inventory taking under the periodic inventory system was conducted on December 31, as it is customary for the company’s external auditors to be in attendance. The Chief Accountant was confused and not willing to be involved in any unethical act.

Required:

a. Appraise the effects and implications of treating the order as revenue on 2020 and 2021 profitability.
(5 Marks)

b. In such circumstances, what should be the responsibilities of the Chief Accountant?
(5 Marks)

c. Analyze the dangers of inappropriate disclosure of information in the financial statements.
(5 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2021 – L3 – Q5 – Revenue Recognition (IFRS 15)"

  • 20 Marks

AAA – Nov 2020 – L3 – Q4 – Audit of IT Systems and Data Analytics

Discuss IT controls and the five-step revenue recognition model in a retail environment adapting to online sales.

Holloway Interiors Limited operates a large shop at Garki, Abuja. The company’s year-end is April 30. It sells high-end furniture and provides interior decoration services. Typically, sales begin with a customer signing an invoice prepared by a sales clerk, who then records the sale in the system and prints a receipt in duplicate, one for the customer and one for filing. The customer either takes the product or arranges for delivery by the company.

Due to the COVID-19 lockdown in Abuja, Holloway Interiors closed its physical showroom, shifted all sales online, and allowed delivery after payment or on a cash-on-delivery basis. Delivery may take up to a week after the online sale is initiated.

You are the Audit Manager for Holloway Interiors Limited.

Required:
a. Discuss the general IT controls expected in Holloway Interiors. (10 Marks)
b. Explain the FIVE steps model for recognizing revenue under IFRS 15: Revenue from Contracts with Customers. (10 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AAA – Nov 2020 – L3 – Q4 – Audit of IT Systems and Data Analytics"

  • 15 Marks

CR – May 2024 – L3 – SC – Q6 – Revenue Recognition (IFRS 15)

Discuss IFRS 15 revenue recognition requirements and address consolidation impacts for two transactions.

You are the chief accountant of Japa PLC, that prepares consolidated financial statements. The managing director who is not an accountant, has recently attended a workshop at which key corporate reporting issues were discussed.

The managing director remembers being taught the following at the workshop:

i. Financial statements of an entity should reflect the substance of its transactions.
ii. Revenue from contracts with customers should only be recognized when certain conditions have been satisfied. Transfer of legal title of the goods is not necessarily sufficient for an entity to recognize revenue from their sales.

The financial year-end of Japa PLC is August 31. In the year to August 31, 2021, the company entered into the following transactions:

Transaction 1

On March 1, 2021, Japa PLC sold a property to Kalokalo Bank LTD for N50 million. The market value of the property at the date of the sale was N100 million. However, Japa PLC continues to occupy the property rent-free. Japa PLC has the option to buy the property back from Kalokalo Bank LTD at the end of every month from March 31, 2021, until February 28, 2026. Japa PLC has not yet exercised this option.

The repurchase price will be N50 million plus N500,000 for every complete month that has elapsed from the date of sale to the date of repurchase. Kalokalo Bank LTD did not require Japa PLC to repurchase the property, and the facility will lapse after February 28, 2026.

The director of Japa PLC expects property prices to rise at around 5% each year for the foreseeable future.

Transaction 2

On September 1, 2020, Japa PLC sold one of its branches to Andrew Tourist Nig. LTD for N80 million. The net assets of the branch in the financial statements of Japa PLC immediately before the sale were N70 million. Andrew Tourist Nig. LTD is a subsidiary of Kalokalo Bank LTD and was specifically incorporated to carry out the purchase; it has no other business operations. Andrew Tourist Nig. LTD received the N80 million to finance this project from its parent (Kalokalo Bank LTD) in the form of a loan.

Japa PLC continues to control the operations of the branch and receives an annual operating fee from Andrew Tourist Nig. LTD. The annual fee is the operating profit of the branch for the 12 months to the previous August 31, less the interest payable on the loan taken out by Andrew Tourist Nig. LTD for the 12 months to the previous August 31. If this amount is negative, then Japa PLC must pay the negative amount to Andrew Tourist Nig. LTD.

Any payments to or by Japa PLC must be made by September 30 following the end of the relevant period.

In the year to August 31, 2021, the branch made an operating profit of N20 million, and interest payable by Andrew Tourist Nig. LTD on the loan for this period was N8 million.

Required:

(a) In accordance with IFRS 15 – Revenue from contracts with customers, discuss the conditions that need to be satisfied before revenue can be recognized. (5 Marks)

(b) Write a memo to the managing director of Japa PLC explaining how the transactions described above will be dealt with in the consolidated financial statements of Japa PLC for the year ended August 31, 2021, in accordance with IFRS 15. (10 Marks)

(Total 15 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – May 2024 – L3 – SC – Q6 – Revenue Recognition (IFRS 15)"

  • 15 Marks

CR – Nov 2018 – L3 – SC – Q7 – Segment Reporting (IFRS 8)

Guidance on segment reporting and revenue recognition for long-term contracts for Agbero Plc’s operating and contract revenue.

a. Agbero plc is a public company rendering services to the Lagos State Government, primarily in public transport. Listed on the Lagos Stock Exchange, Agbero plc identified three operating segments in its annual financial statements for the year ended March 31, 2018:

  • Segment 1: Local bus operations
  • Segment 2: Inter-city bus operations
  • Segment 3: Road constructions

The company disclosed two reportable segments. Segments 1 and 2 were aggregated into a single reportable operating segment, based on similar business characteristics, and the nature of their products and services. In the local bus operations market, the Lagos State Transport Authority awards the contract and pays Agbero for its services. Contracts for local bus operations are awarded via a competitive tender process, and ticket prices are set and paid to the Lagos State Transport Authority. In the inter-city bus operation market, Agbero sets the ticket prices, and passengers pay Agbero directly for the service.

Required:

i. Advise Agbero plc on how the above accounting issues should be dealt with in its financial statements. (6 Marks)

ii. Although the company is satisfied with IFRS 8 – Operating Segment, it is unclear who to designate as the chief operating decision maker (CODM) under the standard. Define the chief operating decision maker in line with IFRS 8 – Operating Segment and identify who this should be in Agbero plc. (2 Marks)

b. Agbero Plc entered a contract with the Lagos State Government on April 1, 2016, to construct a new light railway line. The contract total revenue is N5 billion over a three-year period. The contract specifies that N1 billion will be paid at the start of the contract, but subsequent payments will be settled only upon completion of the project. Invoices have been sent as follows:

  • Year ended March 31, 2017: N2.8 billion
  • Year ended March 31, 2018: N1.2 billion
  • Remaining balance to be invoiced on March 31, 2019

To date, Agbero Plc has only recognized the initial payment in the financial statements up to March 31, 2017, as no subsequent payments are due until March 31, 2019. The invoiced amounts reflect the work completed in each period.

Required:

Agbero Plc. wishes to know how to account for the revenue on the contract in the financial statements to date. Advise Agbero Plc. Market interest rates are currently at 6%. (7 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2018 – L3 – SC – Q7 – Segment Reporting (IFRS 8)"

  • 4 Marks

PSAF – Nov 2023 – L2 – Q3b – Public Procurement and Contract Management

Prepare journal entries to record revenue, expenses, and payments for a healthcare construction project.

Based on the budget of Azare Federal Ministry of Health and Wellbeing (AFMHW), a contract to construct 5 units of Primary Healthcare Centres (PHC) in each of the six (6) geo-political zones to address malaria, infant deaths, and years of neglect in prioritizing primary healthcare and well-being of the citizens was signed with Alaafia Construction Company. This contract was at the cost of N12,250,200 per unit, with a 2-year contract duration and no variation clause.

A valuation certificate was submitted at the end of year one, which showed that over 60% of the contract has been executed, while N294,004,800 has been estimated to have been spent on the project since inception. There were also indications that the office of AFMHW has paid the contractor a total sum of N244,100,000.

Required:

Prepare journal entries to record the above transactions. (4 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "PSAF – Nov 2023 – L2 – Q3b – Public Procurement and Contract Management"

  • 30 Marks

PSF – Nov 2023 – L2 – Q1 – Public Sector Financial Statements

Assess expected profit, completion stage, and financial statement recognition for a government contract under IPSAS.

Housing-for-all Corporation is an entity established by Kazua State to engage in building construction. The corporation is partly financed with subvention from the State and also from the proceeds from its operations. It applied for a bid to construct twenty (20) classroom buildings in the riverine area of the state. After all the initial procurement processes on bid-opening were carried out, the corporation won the contract in June 2018. The contract price was N220m. The building construction contract was billed for completion in two years. The company uses stages of completion on the basis of value of work completed. The following financial data were available in respect of the contract as at December 31, 2019:

Description Amount (N’000)
Total contract price 220,000
Total expected costs 180,000
Costs incurred to date 120,000
Value of work certified as complete 140,000
Amount billed to client (Kazua State) 130,000
Progress payment received from client 100,000

The contract was duly completed in June 2020.

Required:

a. Determine the expected profit of the contract, stage of completion in percentage, as well as the amount to be recognized in Housing-for-all Corporation’s income statement at December 31, 2019. (11 Marks)

b. Calculate the amount to be recognized as gross amount due to or from the client, Kazua State, the amount of trade receivable, and prepare extracts of financial statements in respect of the construction contracts at December 31, 2019. (13 Marks)

c. Identify what constitutes the composition of contract costs as contained in IPSAS 11. (6 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "PSF – Nov 2023 – L2 – Q1 – Public Sector Financial Statements"

  • 20 Marks

CR – Nov 2017 – L3 – Q4 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Explain IFRS accounting treatment and ethical issues in Enugun Industries Ltd.’s draft financial statements for the year ended Dec 31, 2014.

Enugun Industries Limited
Atikun has recently been appointed as Financial Controller to Enugun Industries Limited. Until a month ago, Enugun Industries had a Finance Director, who resigned suddenly, due to ill health. Since Atikun joined the company, he has learned that his resignation was related to stress caused by a series of disagreements with the Managing Director about the performance of the business. The directors have not yet appointed a replacement.

It is now March 2015, and you have been asked to finalize the financial statements for the year ended December 31, 2014. The draft statement of profit or loss extract and statement of financial position are shown below:

Draft statement of profit or loss for the year ended December 31, 2014:

Profit before tax ₦’000
2,500

Draft statement of financial position as of December 31, 2014:

Item Amount (₦’000)
Property, plant, and equipment 12,000
Current assets 3,500
Total assets 15,500
Share capital 2,000
Retained earnings 6,000
Equity 8,000
Non-current liabilities 5,000
Current liabilities 2,500
Total equity and liabilities 15,500

During the year ended December 31, 2014, Enugun Industries entered into the following transactions:

  1. Just before the year-end, Enugun Industries signed a contract to deliver consultancy services for a period of 2 years at a fee of ₦500,000 per annum. The full amount of this fee has been paid in advance and is non-refundable.
  2. Enugun Industries has constructed a new factory. The construction has been financed from the pool of existing borrowings. Land at a cost of ₦1.8 million was acquired on February 1, 2014, and construction began on June 1, 2014. Construction was completed on September 30, 2014, at an additional cost of ₦2.7 million. Although the factory was usable from that date, full production did not commence until December 1, 2014. Throughout the year, the company’s average borrowings were as follows:
    Borrowing Type Amount (₦) Annual Interest Rate (%)
    Bank overdraft 1,000,000 9.75
    Bank loan 1,750,000 10
    Loan notes 2,500,000 8

    An amount of ₦450,000 has been included in property, plant, and equipment in respect of borrowing costs relating to the construction of the factory. The useful life of the factory has been estimated at 20 years. No depreciation has been charged for the year. The reason for this is that the factory has only been in use for one month and that the depreciation charge would be immaterial.

  3. A blast furnace with a carrying amount at January 1, 2014, of ₦3.5 million has been depreciated in the draft financial statements based on a remaining life of 20 years. In December 2014, the directors carried out a review of the useful lives of various significant items of plant and machinery, including the blast furnace. They concluded that the furnace’s useful life was 20 years as of December 31, 2014. The reasoning behind this judgment was that the lining of the furnace had been replaced in the last week of December 2014 at a cost of ₦1.4 million. Provided that the lining is replaced every five years, the life of the furnace can be extended accordingly. You have found a report commissioned by the previous Finance Director and prepared by a firm of asset valuation specialists, which assesses the remaining useful life of the main structure of the furnace as 15 years at January 1, 2014, and the lining of the furnace as 5 years. You have also found evidence that the Managing Director has seen this report.

Atikun has had a conversation with the Managing Director, who told him, “We need to make the figures look as good as possible, so I hope you’re not going to start being difficult. The consultancy fee is non-refundable, so there’s no reason why we can’t include it in full. I think we should look at our depreciation policies. We’re writing off our assets over far too short a period. As you know, we’re planning to go for a stock market listing in the near future, and being prudent and playing safe won’t help us do that. It won’t help your future with this company either.”

Required:

  1. Explain the required IFRS accounting treatment of these issues, preparing relevant calculations where appropriate.
    (16 Marks)
  2. Discuss the ethical issues arising from your review of the draft financial statements and the actions that you should consider.
    (4 Marks)

Total: 20 Marks

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2017 – L3 – Q4 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)"

  • 20 Marks

CR – Nov 2017 – L3 – Q3 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Evaluate Funda Plc's accounting policies for specific transactions, recommending adjustments as per IFRS where appropriate.

Funda Plc. is a listed utility service company in Nigeria providing water, electricity, and cable services. The directors prepared draft financial statements for the year ended June 30, 2017, following IFRS guidelines to support a loan application. Employees, owning 5% of ordinary shares, raised concerns about certain accounting policies applied by Funda Plc.

The draft income statement for the year ended June 30, 2017, is as follows:

N’m
Revenue 410.0
Cost of Sales (275.0)
Gross Profit 135.0
Other Operating Costs (65.0)
Profit Before Taxation 70.0

Employee Representatives’ Queries on Accounting Policies:

  1. Sale of Water Filters
    Funda Plc. sold 30 industrial water filters to a steelmaker, offering a 20% discount and granting the steelmaker a put option to repurchase the filters at 35% of the purchase price after six years, despite the filters’ expected ten-year life. Funda Plc. has recognized the entire revenue upfront.
  2. Connection Fees
    A refundable connection fee is charged for electricity connections, to be returned upon customer disconnection. No minimum notice is required, and costs can be deducted from refunds. The fee was fully recognized in the year as revenue.
  3. Activation Fees
    Non-refundable activation fees for digital cable services were fully recognized in revenue.
  4. Deposits for Domestic Electrical Goods
    Customers place a 25% deposit on orders, with the balance payable on delivery. Deposits are retained if orders are canceled but refunded if Funda Plc. fails to deliver. Revenue includes N10 million from deposits, with 90% of orders fulfilled.

Required:
Prepare a report explaining the suitability of Funda Plc.’s accounting policies for each transaction and recommend the appropriate IFRS treatment where necessary.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – Nov 2017 – L3 – Q3 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)"

  • 1 Marks

FA – May 2014 – L1 – SA – Q19 – Bank reconciliations

This question tests knowledge of terminology for guaranteed minimum payments in royalty agreements.

The guaranteed amount payable where the royalty calculated on the basis of actual production falls short of the estimated level is ………………………

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – May 2014 – L1 – SA – Q19 – Bank reconciliations"

  • 10 Marks

CR – May 2020 – L3 – Q3a – Foreign Currency Transactions

Foreign currency transactions related to purchases, sales, and investment property with exchange rate variations and reporting implications.

Medina Power Ltd has carried out certain transactions denominated in foreign currency during its financial year ended 31 October 2019 and has also conducted foreign operations through a foreign entity. Medina Power Ltd.’s functional and presentation currency is the cedi.

On 31 July 2019, Medina Power Ltd purchased goods from a foreign supplier for 16 million dinars. At 31 October 2019, the supplier had not yet been paid and the goods were still held in inventory by Medina Power Ltd.

On 31 July, Medina Power Ltd sold goods to a foreign customer for 8 million dinars, and it received payment for the goods in dinars on 31 October 2019.

Medina Power Ltd had also purchased an investment property on 1 November 2018 for 56 million dinars. At 31 October 2019, the investment property had a fair value of 48 million dinars. The company uses the fair value model in accounting for investment properties.

Medina Power Ltd wants advice on how to treat these transactions in the financial statements for the year ended 31 October 2019.

question table

Required:
Discuss the accounting treatment of the above transactions in accordance with the advice required by the directors. (You should show detailed workings as well as a discussion of the accounting treatment used.)

 

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "CR – May 2020 – L3 – Q3a – Foreign Currency Transactions"

  • 3 Marks

FR – May 2020 – L2 – Q2d – Accounting for Government Grants under IAS 20

Explain the financial reporting treatment of government grants in Dambai Ltd’s financial statements under IAS 20.

Dambai Ltd is a large manufacturing company. During the year, it decided to relocate some operations to a regional development area, which offers attractive labour costs and tax incentives. The regional government agreed to contribute GH¢200,000 as a result of Dambai setting up in the regional development area. There are no particular conditions as to what the money should be spent on. The cash was received on 1 August 2019.

Required:
In accordance with IAS 20: Accounting for Government Grants and Disclosure of Government Assistance, explain the financial reporting treatment of the above in the financial statements of Dambai for the year ended 31 December 2019.

 

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – May 2020 – L2 – Q2d – Accounting for Government Grants under IAS 20"

  • 15 Marks

FR – Nov 2018 – L2 – SC – Q5 – Revenue from Contracts with Customers (IFRS 15)

Prepare the statement of profit or loss and financial position extracts based on the percentage of completion for a building contract over two years.

Akawo Limited is a building contracting firm based in Abuja. ABC Limited awarded a contract to Akawo Limited to construct a residential building in Lagos. The agreed contract price is N80 million, and the completion date is December 31, 2017.

The following are details of transactions on the contract up to March 31, 2016:

  • Contract commenced on July 1, 2015
  • Contract costs incurred by March 31, 2016, include:
    • Architects and surveyor’s fees: N1,000,000
    • Materials: N6,200,000
    • Direct labor costs: N7,000,000
    • Overheads (40% of direct labor costs): N2,800,000
    • Estimated cost to completion (excluding depreciation): N29,600,000
    • Plant and machinery used exclusively on the contract: N7,200,000 (Depreciation based on period of use)
    • Material on-site as at March 31, 2016: N600,000

The value of the plant at the end of the contract would be N1.2m and the basis of depreciation
is period of usage. Material on site as at March 31, 2016 is N600,000.

Progress payment made by ABC Limited to Akawo Limited amounted to N25.6m as at March
31, 2016.

The following information is also relevant to the contract as at March, 31 2017:

Cost incurred since the commencement of the contract to date-N40.8m.
Estimated cost to completion (excluding depreciation) N13.2m

ABC Limited paid additional N32.4m to Akawo Limited on March, 31 2017 Akawo Limited
uses percentage of completion to determine profit on a contract.

Required:
Prepare in relation to the building contract, the statement of profit or loss extracts for the years ended March 31, 2016, and 2017, and the statement of financial position extracts as at the year ended on those dates.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – Nov 2018 – L2 – SC – Q5 – Revenue from Contracts with Customers (IFRS 15)"

  • 1 Marks

FA – May 2018 – L1 – SA – Q8 – Bases of Accounting: Accrual vs. Cash

Identifies the requirement for revenue recognition under the cash basis of accounting.

The cash basis of accounting requires the recognition of revenue only when they are:
A. Due
B. Earned
C. Paid
D. Received
E. Budgeted

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – May 2018 – L1 – SA – Q8 – Bases of Accounting: Accrual vs. Cash"

  • 1 Marks

FA – Nov 2023 – L1 – SA – Q10 – Bases of Accounting: Accrual and Cash

Identify the correct description of the cash basis of accounting.

Which of the following statements correctly describes cash basis of accounting?

  • A. Revenue is recognised in the period when it is earned, regardless of when the cash is received
  • B. Expenses are recognised in the period when they are incurred, regardless of when they are paid
  • C. Revenue is recognised in the period when the cash is received, regardless of when it is earned
  • D. Expenses are recognised in the period when they are earned, regardless of when they are incurred
  • E. Both revenue and expenses are recognised in the period when they are occurred, regardless of cash transactions

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FA – Nov 2023 – L1 – SA – Q10 – Bases of Accounting: Accrual and Cash"

  • 7 Marks

FR – Mar 2023 – L2 – Q2a – Financial Reporting Standards and Their Applications

Explain the revenue recognition and financial reporting treatment under IFRS 15 for a sale with a return right and significant financing component.

On 1 January 2022, Anto Ltd sold heavy-duty machines costing GH¢4.5 million to Nkwaso Ltd for GH¢7.5 million, receivable in full on 1 April 2023. Nkwaso Ltd obtained control of the machines at the contract inception. The terms of the contract allowed the customer to return the machines within three (3) months. The machines are new, and Anto Ltd has no relevant historical evidence of product returns or other available market evidence.

Based on their individual credit profiles at the transaction date, Anto Ltd and Nkwaso Ltd would have been charged borrowing rates of 15% and 20%, respectively.

Required:

In line with IFRS 15: Revenue from Contract with Customers, explain the correct financial reporting treatment of the above for the year ended 31 March 2022.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – Mar 2023 – L2 – Q2a – Financial Reporting Standards and Their Applications"

  • 20 Marks

AA – Nov 2018 – L2 – Q3a, b & c – Audit and Assurance Risk Environment

Identifies audit risks at International Training Center and outlines appropriate auditor responses.

International Training Center (ITC) is a large company limited by shares that operates a network of teaching centers in countries across West Africa. The Company was incorporated under the requirements of the Companies Act, 1963 (Act 179), on 19 January 1990 and domiciled in Ghana. Students who register with the Center pay 30% during initial registration and the remaining 70% over the course period. You are the senior Associate of Add Consult. ITC is a new client, and you are currently planning the audit with the audit manager to audit the company for the year ended 31 December 2017.

You have been provided with the following planning notes from the audit partner following his meeting with the Finance Director.

  • ITC purchases stationery from a supplier in China, and these goods are shipped to the company’s central warehouse. The goods are usually in transit for a fortnight, and the company correctly records the goods when received. ITC does not undertake a year-end inventory count but carries out monthly continuous (perpetual) inventory counts, and any errors identified are adjusted in the inventory system for that month.
  • During the year, the directors of the Company have each been paid a significant bonus, and they have included this in wages and salaries expenses. Separate disclosure of the bonus is required by the Companies Act.
  • ITC has a policy of revaluing its land and buildings, and this year has updated the valuations of all land and buildings.
  • During the year, the company introduced a bonus-based scheme on sales for its salespersons. The bonus target was based on increasing the number of students signing up for 6-month courses by the school for individuals running accountancy examinations. This has been successful, and revenue has increased by 25%, especially in the last few months of the year. The level of receivables is considerably higher than last year, and there are concerns about the creditworthiness of some students.

Required:
a. Describe FIVE (5) audit risks, and explain the auditor’s response to each risk, in planning the audit of International Training Center. (10 marks)

b. Identify FIVE (5) audit procedures Add Consult should perform in order to place reliance on the continuous (perpetual) counts for year-end inventory. (5 marks)

c. Describe substantive procedures Add Consult should perform to confirm the directors’ bonus payments included in the financial statements. (5 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AA – Nov 2018 – L2 – Q3a, b & c – Audit and Assurance Risk Environment"

  • 4 Marks

FR – Nov 2021 – L2 – Q2b – Financial Reporting Standards and Their Applications

This question requires the recognition of revenue under IFRS 15 for a contract with advance payments and the calculation of a significant financing component.

Marshall Ltd (Marshall) is a manufacturing company that prepares Financial Statements in compliance with IFRSs and has a reporting date of 31 December. During the year to 31 December 2020, Marshall entered into a contract with a customer to manufacture and sell some goods such that the goods will be delivered (control of the goods vests with the customer) in two years. The contract has two payment options:

i) The customer can pay GH¢500,000 when the contract is signed, or

ii) GH¢650,000 in two years when the customer gains control of the goods.

Marshall’s incremental borrowing rate is 10%. The customer paid GH¢500,000 on 1 January 2020, when the contract was signed. Marshall intends to recognise revenue on this contract in the financial statements.

Required:
In accordance with IFRS 15: Revenue from Contract with Customers, explain (with supporting calculations) how Marshall should account for the above transactions for the years 2020 and 2021.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – Nov 2021 – L2 – Q2b – Financial Reporting Standards and Their Applications"

  • 7 Marks

FR – Nov 2021 – L2 – Q2a – Financial Reporting Standards and Their Applications

This question deals with the application of IFRS 9 in financial instruments and the recognition of revenue under IFRS 15.

Manu Ltd (Manu) is a private company that prepares financial statements in compliance with International Financial Reporting Standards (IFRSs). Financial statements for the year ended 31 December 2020 are being prepared, and the following transactions occurred.

i) On 1 September 2020, Manu purchased 100,000 ordinary shares on the stock exchange for speculative reasons (making a profit) at a price of GH¢1.20 per share and paid a transaction cost of GH¢1,250. On 31 December 2020, the shares were now trading at GH¢1.32 per share on the stock exchange, and Manu received a dividend of GH¢15,000 on the shares.
(3 marks)

ii) Manu issued GH¢360,000 of redeemable 2% Preference shares at a discount of 14% on 1 January 2020. Issue costs were GH¢5,265. The shares will be redeemed on 31 December 2022 at par. Interest is paid annually in arrears, and the effective interest rate is 8%.
(4 marks)

Required:
In accordance with IFRS 9: Financial Instruments, explain how to account for the above transactions in the statement of profit or loss and statement of financial position for the year ended 31 December 2020.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – Nov 2021 – L2 – Q2a – Financial Reporting Standards and Their Applications"

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Contact Info

  • +233203701923
    +233543919232
  • info@nbcinstitute.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
error: Content is protected !!
Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan