(a) Conditions that must be satisfied before revenue can be recognised in accordance with IFRS 15 –Revenue from Contracts with Customers.

i. Identify the contract(s) with a customer

A contract exists only when it has commercial substance, the parties have approved it, each party‟s rights can be identified, payment terms are clear and collection is probable.

ii. Identify the separate performance obligations in the contract

The promised good or service must be capable of being distinct and separately identifiable within the context of the contract.

iii. Determine the transaction price

The consideration an entity expects to be entitled to must be reliably measured, including any variable consideration estimated using the expected-value or most-likely-amount method.

iv. Allocation of the transaction price to the performance obligations

When a contract has multiple performance obligations, the transaction price must be allocated on a relative stand-alone-selling-price basis.

v. Recognise revenue when or as at an entity satisfies performance

Revenue is recognised only when (or as) the customer obtains control of the promised asset. Transfer of legal title alone is not sufficient; the substance (ability to direct the use and obtain the benefits) is decisive.

(b) Treatment of transactions described above in the consolidated financial statements of Oretente Plc for the year ended July 31, 2020.

Transaction 1:

 The key issue is whether Oretente Plc has transferred control of the branch.

 Oretente Plc continues to control the operations of the branch and the amount that it receives from Danto Plc is the operating profit of the branch less the interest payable on the loan;

 Oretente Plc also suffers the effect of any operating losses made by the branch. Therefore, the position is essentially the same as before the ‘sale’ and Oretente Plc has not satisfied any performance obligation in return for the consideration of ₦24million;

 Although, Danto Plc is not a subsidiary of Oretente Plc as defined by IFRS 10-Consolidated financial statements, it is a special purpose entity (quasi-subsidiary);

 It gives rise to benefits for Oretente Plc that is in substance no different from those that would arise if it were a subsidiary. Its assets, liabilities, income and expenses must be included in the consolidated financial statements;

 The assets and liabilities of Danto Plc are included in the consolidated statement of financial position at ₦21million (their original value to the group);

 The loan of ₦24million is recognised as a non-current liability;

 The profit on disposal of ₦2million and the operating fee of ₦3,600,000 are cancelled as intra-group transactions; and

 The operating profit of ₦6,000,000 is included in consolidated profit or loss as is the loan interest of ₦2,400,000.

Transaction 2:

 Oretente Plc has the option to repurchase the property but cannot be required to do so;

 This is a call option in which the repurchase price is equal to or above the original selling price, therefore, it should be accounted for as a financing arrangement,

 Oretente Plc has not transferred control of the property to the bank as it still has the right to exercise this option, therefore, no performance obligation has been satisfied which could justify the recognition of revenue;

 The transaction is essentially a loan secured on the property, rather than an outright sale;

 The ₦150,000 payable for each month that the bank holds the property is interest on the loan;

 The property remains in the consolidated statement of financial position at its cost or market value (depending on the accounting policy adopted by Oretente Plc)

 The loan of ₦15million and accrued interest of ₦900,000 (6 x ₦150,000) are reported under non-current liabilities; and

 Interest of ₦900,000 is recognised in consolidated profit or loss.