问题详情

TherehasbeensignificantdivergenceinpracticeoverrecognitionofrevenuemainlybecauseInternationalFinancialReportingStandards(IFRS)havecontainedlimitedguidanceincertainareas.TheInternationalAccountingStandardsBoard(IASB)asaresultofthejointprojectwiththeUSFinancialAccountingStandardsBoard(FASB)hasissuedIFRS15RevenuefromContractswithCustomers.IFRS15setsoutafive-stepmodel,whichappliestorevenueearnedfromacontractwithacustomerwithlimitedexceptions,regardlessofthetypeofrevenuetransactionortheindustry.Steponeinthefive-stepmodelrequirestheidentificationofthecontractwiththecustomerandiscriticalforthepurposeofapplyingthestandard.Theremainingfourstepsinthestandard’srevenuerecognitionmodelareirrelevantifthecontractdoesnotfallwithinthescopeofIFRS15.
Required:
(a)(i)DiscussthecriteriawhichmustbemetforacontractwithacustomertofallwithinthescopeofIFRS15.(5marks)
(ii)DiscussthefourremainingstepswhichleadtorevenuerecognitionafteracontracthasbeenidentifiedasfallingwithinthescopeofIFRS15.(8marks)
(b)(i)Tangentersintoacontractwithacustomertosellanexistingprintingmachinesuchthatcontroloftheprintingmachinevestswiththecustomerintwoyears’time.Thecontracthastwopaymentoptions.Thecustomercanpay$240,000whenthecontractissignedor$300,000intwoyears’timewhenthecustomergainscontroloftheprintingmachine.Theinterestrateimplicitinthecontractis11·8%inordertoadjustfortheriskinvolvedinthedelayinpayment.However,Tang’sincrementalborrowingrateis5%.Thecustomerpaid$240,000on1December2014whenthecontractwassigned.(4marks)
(ii)Tangentersintoacontracton1December2014toconstructaprintingmachineonacustomer’spremisesforapromisedconsiderationof$1,500,000withabonusof$100,000ifthemachineiscompletedwithin24months.Attheinceptionofthecontract,TangcorrectlyaccountsforthepromisedbundleofgoodsandservicesasasingleperformanceobligationinaccordancewithIFRS15.Attheinceptionofthecontract,Tangexpectsthecoststobe$800,000andconcludesthatitishighlyprobablethatasignificantreversalintheamountofcumulativerevenuerecognisedwilloccur.CompletionoftheprintingmachineishighlysusceptibletofactorsoutsideofTang’sinfluence,mainlyissueswiththesupplyofcomponents.
At30November2015,Tanghassatisfied65%ofitsperformanceobligationonthebasisofcostsincurredtodateandconcludesthatthevariableconsiderationisstillconstrainedinaccordancewithIFRS15.However,on4December2015,thecontractismodifiedwiththeresultthatthefixedconsiderationandexpectedcostsincreaseby$110,000and$60,000respectively.ThetimeallowableforachievingthebonusisextendedbysixmonthswiththeresultthatTangconcludesthatitishighlyprobablethatthebonuswillbeachievedandthatthecontractstillremainsasingleperformanceobligation.Tanghasanaccountingyearendof30November.(6marks)
Required:
DiscusshowtheabovetwocontractsshouldbeaccountedforunderIFRS15.(Inthecaseof(b)(i),thediscussionshouldincludetheaccountingtreatmentupto30November2016andinthecaseof(b)(ii),theaccountingtreatmentupto4December2015.)
Note:Themarkallocationisshownagainsteachoftheitemsabove.
Professionalmarkswillbeawardedinquestion4forclarityandqualityofpresentation.(2marks)


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