IFRS 15 requires revenue to be recognised as each performance obligation is fulfilled. An entity satisfies a performance obligation by transferring control of a promised good or service to the customer, which could occur over time or at a point in time.

In this arrangement, Anto Ltd has delivered the machines and transferred control to the customer but cannot recognise revenue. This is because the existence of the right of return and the lack of relevant historical evidence means that Anto Ltd cannot conclude that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur in accordance with paragraphs 56–58 of IFRS 15. Consequently, revenue is recognised after three months (i.e., on 31 March 2022) when the right of return lapses.

The contract includes a significant financing component, in accordance with paragraphs 60–62 of IFRS 15 as Abeiku Dealer has to wait for two years before receiving the payment. The credit advanced would attract an annual interest rate of 20%.

The following journal entries illustrate how the entity accounts for this contract:

• When the product is transferred to the customer:
  

  GH¢’000	GH¢’000
  Asset for the right to recover product to be returned	4,500
  Inventory	4,500

• During the three-month right of return period, no interest is recognised in accordance with paragraph 65 of IFRS 15 because no contract asset or receivable has been recognised.
• When the right of return lapses (the product is not returned):
  

  GH¢’000	GH¢’000
  Receivable (7600/1.22)	5,278
  Inventory	5,278
  Cost of sales	4,500
  Asset for the right to recover product to be returned	4,500

Note: Interest charges will start in the next financial year.