- 6 Marks
CR – Nov 2014 – L3 – SB – Q2c – Revenue Recognition (IFRS 15)
Assess revenue recognition change for NIXAQ sales under IFRS 15 and calculate total revenue for the year.
Question
Maidogo Limited sells NIXAQ, a product manufactured by it, from several retail outlets. In previous years, the company has undertaken responsibility for fitting the product in customers’ premises. Customers pay for the product at the time they are ordered. The average length of time it takes from ordering to its fitting is 14 days. In previous years, Maidogo Limited had not recognised a sale in its books until the product had been successfully fitted because the rectification costs of any fitting error would be expensive.
With effect from 1 April, 2013, Maidogo Limited changed its method of trading by sub-contracting the fitting to approved contractors. Under this policy, the sub-contractors are paid by Maidogo Limited, and they (the sub-contractors) are liable for any errors made in the fitting. Consequently, Maidogo Limited is proposing to recognise sales when customers order and pay for the goods rather than when they have been fitted. Details of the relevant sales figures are:
| Sales Figures | Amount (N’000) |
|---|---|
| Sales made in retail outlets for the year to 31 March 2014 | 69,000 |
| Sales value of NIXAQ fitted in the 14 days to 14 April 2013 | 3,600 |
| Sales value of NIXAQ fitted in the 14 days to 14 April 2014 | 4,800 |
Note: The sales value of NIXAQ in the 14 days to 14 April 2013 are not included in the annual sales figure of N69million, but those for 14 April 2014 are included.
Required:
Discuss whether or not the above represents a change of accounting policy, and calculate the amount that you would include in the revenue for NIXAQ in the year to 31 March 2014. (6 Marks)
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