Question Tag: Variable Consideration

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  • 4 Marks

FR – Nov 2019 – L2 – Q6c – Revenue from Contracts with Customers (IFRS 15)

Explain the financial reporting treatment for returned products under IFRS 15.

On September 20, 2019, Phonetell Nigeria Limited sold 100 units of Android PT-Tablet to a major customer for N200,000 each. The PT-Tablet costs Phonetell Nigeria Limited N160,000 each.

The terms of sales are that the customers have the right to return the tablets for a full refund within 3 months. On expiration of the 3 months period, the customer can no longer return the PT-Tablet, and payment becomes immediately due. Phonetell has entered into transactions of this type with these customers previously and can reliably estimate that 4% of the Android PT-Tablets are likely to be returned within the three-month period.

Required:

Explain how the above transactions would be reported in the financial statements of Phonetell Nigeria Limited for the year ended September 30, 2019.
(4 Marks)

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  • 7 Marks

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.

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).

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  • 4 Marks

FR – Nov 2019 – L2 – Q6c – Revenue from Contracts with Customers (IFRS 15)

Explain the financial reporting treatment for returned products under IFRS 15.

On September 20, 2019, Phonetell Nigeria Limited sold 100 units of Android PT-Tablet to a major customer for N200,000 each. The PT-Tablet costs Phonetell Nigeria Limited N160,000 each.

The terms of sales are that the customers have the right to return the tablets for a full refund within 3 months. On expiration of the 3 months period, the customer can no longer return the PT-Tablet, and payment becomes immediately due. Phonetell has entered into transactions of this type with these customers previously and can reliably estimate that 4% of the Android PT-Tablets are likely to be returned within the three-month period.

Required:

Explain how the above transactions would be reported in the financial statements of Phonetell Nigeria Limited for the year ended September 30, 2019.
(4 Marks)

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  • 7 Marks

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.

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).

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