IFRS 15 – Knowsia

FR – L2 – Q15 – Financial Reporting Standards

Calculate revenue, costs, and financial statement balances for four construction contracts using cost proportion method.

Question

On 31 March 20X9, Annabel Ltd had four construction contracts in progress. Details are set out below.

	Contract A	Contract B	Contract C	Contract D
	GH¢000	GH¢000	GH¢000	GH¢000
Contract price	1,850	750	960	800
Costs to date	1,490	590	405	120
Estimated future costs		25	600	480
Revenue taken in earlier years	990	100
Cost of sales recognised in earlier years	800	100
Progress billings to date	1,850	690	650	100
Cash received to date	1,850	600	600	100

Contract A was completed during the year.
Contract C commenced on 1 May 20X8.
Contract D commenced on 1 January 20X9. It is not considered possible on 31 March 20X9 to assess the outcome of Contract D with any certainty.
Annabel Ltd recognises revenue based on the proportion of costs incurred to date to expected total costs.

Required:
Show the amounts that would be recognised and presented for each contract in the financial statements of Annabel Ltd for the year ended 31 March 20X9 and show the total balances in those financial statements. Work to the nearest GH¢000.

Answer

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Tags: Construction Contracts, Contract Assets, Contract Liabilities, Financial Statements, IFRS 15, Progress Billings, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q14 – Financial Reporting Standards and Their Applications

Discuss accounting for a repurchase agreement and consignment arrangement for Accra Healthcare Manufacturing Limited per IFRS standards.

Question

The following transactions took place at Accra Healthcare Manufacturing Limited in the year ended 31 March 20X9.

(1) On 1 January Accra Healthcare Manufacturing Limited sold goods to a bank for GH₵18m cash and agreed to repurchase the personally identifiable information repurchase the goods for GH₵20m cash on 31 December 20X9.

(2) On 31 March Accra Healthcare Manufacturing Limited consigned several motorised mobility aids to independent medical salespeople for sale to third parties. The sales price to the dealer is Accra Healthcare Manufacturing Limited’s list price at the date of sale to third parties. If a mobility aid is unsold after six months, the medical rep has a right to return it to Accra Healthcare Manufacturing Limited.

Required
Discuss how the above transactions should be accounted for in the financial statements of Accra Healthcare Manufacturing Limited for the year ended 31 March 20X9.

Answer

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Tags: Consignment Arrangements, Financing Transactions, IFRS 15, Repurchase Agreements, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q13 – Revenue Recognition

Explain how performance obligations are identified under IFRS 15 for a contract to supply goods and services.

Question

13 Davies Ltd

Davies Ltd manufactures and sells machines and has a 31 December year-end.

Customers are required to pay a deposit of 10% on order. The remaining 90% is paid on delivery.

Machines are delivered to customers by a third party. Within one week after delivery, Davies Ltd’s employees install the machines on customers’ premises. The installation required is not complex and is capable of being performed by several alternative service providers. Installation costs 1% of the transaction price.

A fee for a three year servicing contract amounting to 6% of the transaction price, are included in the final invoice.

Required

(a) Explain how performance obligations are identified when deciding how to account for a contract to supply goods and services in accordance with IFRS 15.

(b) Identify and explain the performance obligations that should be identified in the above contract.

Construct journals for the year end to 31 December to account for a sale of a single machine with a selling price of GH¢1,000,000 in each of the following circumstances.

(d) Circumstance 2: A customer orders the machine on 30 November. It is delivered on 20 December and installed on 10 January.

(e) Circumstance 3: A customer orders the machine on 30 November. It is delivered on 20 December and installed on 30 December.

Answer

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Tags: Accounting Standards, Financial Reporting, IFRS 15, Performance Obligations, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q12 – Revenue Recognition

State IFRS 15's core principle for revenue recognition and list the five steps to apply it.

Question

12 SALE OF GOODS AND LEISURE FACILITIES
“Revenue is income arising in the course of an entity’s ordinary activities.”
IFRS 15 sets out principles to be applied in order to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Required
(a) State the core principle described by IFRS 15 in the recognition of revenue and list the five steps to be followed in applying this core principle.

(b) Zest Ltd runs a health club which provides sports and leisure facilities. It charges a fixed annual subscription, payable in advance, which entitles members to use most of the facilities (e.g. gym, swimming pool). Additional fees are payable for specific activities (e.g. sauna, squash courts) as used.
Explain in detail how Zest Ltd should recognise revenue from membership subscriptions and additional activities.

Answer

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Tags: Accounting Standards, Financial Reporting, Health Club, IFRS 15, Performance Obligations, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

Tag (SQ): IFRS 15

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FR – L2 – Q15 – Financial Reporting Standards

Calculate revenue, costs, and financial statement balances for four construction contracts using cost proportion method.

FR – L2 – Q14 – Financial Reporting Standards and Their Applications

Discuss accounting for a repurchase agreement and consignment arrangement for Accra Healthcare Manufacturing Limited per IFRS standards.

FR – L2 – Q13 – Revenue Recognition

Explain how performance obligations are identified under IFRS 15 for a contract to supply goods and services.

FR – L2 – Q12 – Revenue Recognition

State IFRS 15's core principle for revenue recognition and list the five steps to apply it.

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FR – L2 – Q15 – Financial Reporting Standards

Calculate revenue, costs, and financial statement balances for four construction contracts using cost proportion method.

You're reporting an error for "FR – L2 – Q15 – Financial Reporting Standards"

FR – L2 – Q14 – Financial Reporting Standards and Their Applications

Discuss accounting for a repurchase agreement and consignment arrangement for Accra Healthcare Manufacturing Limited per IFRS standards.

You're reporting an error for "FR – L2 – Q14 – Financial Reporting Standards and Their Applications"

FR – L2 – Q13 – Revenue Recognition

Explain how performance obligations are identified under IFRS 15 for a contract to supply goods and services.

You're reporting an error for "FR – L2 – Q13 – Revenue Recognition"

FR – L2 – Q12 – Revenue Recognition

State IFRS 15's core principle for revenue recognition and list the five steps to apply it.

You're reporting an error for "FR – L2 – Q12 – Revenue Recognition"

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