Which of the following is not one of the 5 steps for recognizing revenue according to IFRS 15 Revenue from contracts with customers?

Whale Limited (WL) is an agent who works on behalf of Dolphin, a famous performer. WL has just collected Rs. 100 million from a promoter in terms of ticket sales for a recent show done by Dolphin. WL earns a commission of 10% in relation to Dolphin’s work. What is the correct double entry for the receipt of the Rs? 100 million?

Coin Limited (CL) sells a specialized piece of equipment to Orbit Limited on 1st September 2017 for Rs. 4m. Due to the specialized nature of the equipment, CL has additionally agreed to provide a support service for the next two years. The cost per annum to CL for providing this service will be Rs. 300,000. CL usually earns a gross margin of 20% on such contracts. What revenue should be included in the statement of profit or loss of CL for the year ended 31 December 2017?

River Limited (RL) has prepared its draft financial statements for the year ended 30 September 2014. It has included the following transactions in revenue at the amounts stated below. Which of these has been correctly included in revenue according to IFRS 15 Revenue from Contracts with Customers?

Cat Limited (CL) sold and installed an item of machinery for Rs. 800,000 on 1 November 2017. Included within the price was a 2-year servicing contract which has a value of Rs. 240,000 and a fee for installation of Rs. 50,000. How much should be recorded in CL’s revenue in its statement of profit or loss for the year ended 31 December 2017 in relation to the machinery sale?

The sales director of a company is close to selling a machine which it sells for Rs. 650,000, offering free service, therefore selling the entire machine for Rs. 560,000 including installation. The company never sells servicing separately. How should this discount be applied in relation to the sale of the machinery?

Cheetah Limited (CL) works as an agent for a number of smaller contractors, earning a commission of 10%. CL’s revenue includes Rs. 6 million received from clients under these agreements with Rs. 5.4 million in cost of sales representing the amount paid to the contractors. What adjustment needs to be made to revenue in respect of the commission sales?

An entity regularly sells Products A, B and C individually, thereby establishing the following stand-alone selling prices:

Product           Stand-alone selling price Rs.

Product A                                 40

Product B                                 55

Product C                                 45

In addition, the entity regularly sells Products B and C together for Rs. 60.
The entity enters into a contract with a customer to sell Products A, B and C in exchange for Rs. 100.

Allocate the transaction price of Rs. 100 to Product A, B and C in accordance with IFRS 15

An entity enters into a contract with a customer to sell Products A, B and C in exchange for Rs. 100.

Product              Stand-alone selling price

Product A                               50

Product B                               25

Product C                               75

Total                                        150

Allocate the transaction price of Rs. 100 to Product A, B and C in accordance with IFRS 15

Which of the following items has correctly been included in Hakeem Limited (HL)’s revenue for the year to 31 December 2011?

Hover Limited (HL) is a car retailer. On 1 April 2014, HL sold a car to a customer on the following terms: The selling price of the car was Rs. 25.3 million. The customer paid Rs. 12.65 million (half of the cost) on 1 April 2014 and will pay the remaining Rs. 12.65 million on 31 March 2016 (two years after the sale). The customer can obtain finance at 10% per annum. What is the total amount which HL should credit to profit or loss in respect of this transaction in the year ended 31 March 2015?

Determining the amount to be recognized in the first year of a long-term contract with a customer is an example of which step in the IFRS 15’s 5-step model.

X Limited wins a competitive bid to provide consulting services to a new customer. X Limited incurred the following costs to obtain the contract:

Rs.

Commissions to sales employees for winning the contract               10,000

External legal fees for due diligence                                                       15,000

Travel costs to deliver proposal                                                               25,000

Total costs incurred                                                                                   50,000

How do recognize the above costs?

On 1 January 2019, an entity enters into a non-cancellable contract to transfer a product to a customer on 31 March 2019. The contract requires the customer to pay a consideration of Rs. 1,000 in advance on 31 January 2019 but the customer pays the consideration on 1 March 2019. The entity transfers the product on 31 March 2019. What journal entry is required to be passed on 31 January 2019?

An entity enters into 100 contracts on 31 December 2017 with customers. Each contract includes the sale of one product for Rs.100. Cash is received when control of a product transfers. The entity’s customary business practice is to allow a customer to return any unused product within 30 days and receive a full refund. The entity’s cost of each product is Rs. 60. Using the expected value method, the entity estimates that 97 products will not be returned. The entity estimates that the costs of recovering the products will be immaterial and expects that the returned products can be resold at a profit. What should be recognized in respect of the above?

Mechanical Limited (ML) sells machines, and also offers installation and technical support services. The individual selling prices of each product are shown below.

The sale price of goods                 Rs. 75,000

Installation                                     Rs. 30,000

One-year service                           Rs. 45,000

ML sold a machine on 1 May 2011, charging a reduced price of Rs. 100,000 including installation and one year’s service. ML only offers discounts when customers purchase a package of products together. According to IFRS 15 Revenue from Contracts with Customers, how much should ML record in revenue for the year ended 31 December 2011?

Car Limited (CL) sold a large number of vehicle spare parts to a new customer for Rs. 10 million on 1 July 2017. The customer paid Rs. 990,000 up front and agreed to pay the remaining balance on 1 July 2018. CL has a cost of capital of 6%. How much should initially be recorded in revenue in respect of the sale of vehicle spare parts in the statement of profit or loss for the year ended 31 December 2017?

Golden Limited enters into a contract with a major chain of retail stores. The customer commits to buying at least Rs.20m of products over the next 12 months. The terms of the contract require Golden Limited to make a payment of Rs.1 m to compensate the customer for changes that it will need to make to its retail stores to accommodate the products. By 31 December 2011, Golden Limited has transferred products with a sales value of Rs.4m to the customer. How much revenue should be recognized by Golden Limited in the year ended 31 December 2011?

Silver Limited sells a machine and one year’s free technical support for Rs. 100,000. It usually sells the machine for Rs. 95,000 but does not sell technical support for this machine as a standalone product. Other support services offered by Silver Limited attract a markup of 50%. It is expected that the technical support will cost Silver Limited Rs. 20,000. How much of the transaction price should be allocated to technical support?

Jupiter Limited (JL) entered into a two-year contract on 1 January 2017, with a customer for the maintenance of a computer network. JL has offered the following payment options: Option 1: Immediate payment of Rs. 200,000. Option 2: Payment of Rs. 110,000 at the end of each year. The applicable discount rate is 6.596%. What amount of revenue should be recognized under option 2 on 31 December 2017?

A company enters into a construction contract to build a warehouse for a customer. The agreed price is Rs.20 million and the specified completion date is 31 October 20Y0. However, the contract provides that the company should receive an incentive payment of a further Rs.2.5 million if the warehouse is completed before 30 June 20Y0. Similarly, the price will be reduced by Rs. 2 million if the warehouse is not completed until after 31 December 20Y0. The company estimates that there is a 15% probability that the warehouse will be completed before 30 June 20Y0, an 80% probability that it will be completed by 31 October 20Y0 and a 5% probability that it will not be completed until after 31 December 20Y0. What is the expected value of the transaction price for this contract?

The accounting principle applied by IFRS 15 when determining whether or not revenue should be recognized in respect of a repurchase agreement is:

With regard to the definition of revenue given by IFRS 15, which of the following statements is true?

Identifying contract with the customer under IFRS 15, a contract with a customer exists when all the following criteria are met when;

Step 1, “identifying the contract” of IFRS 15 states that certain conditions must be satisfied before an entity can account for a contract with a customer. Which of the following is not one of these conditions?

Step two requires the identification of the separate performance obligations in the contract. This is often referred to as unbundling and is done at beginning of a contract. What is the key factor in identifying a separate performance obligation?

Step three requires the entity to determine the transaction price. This is the amount of consideration that an entity expects to be entitled to in exchange for the promised goods or services. The transaction price might include variable or contingent considerations. How does the entity estimate the amount of the variable consideration?

Step 4 requires the allocation of the transaction price to separate performance obligations. The allocation is based on the relative standalone selling prices of the goods or services promised and are made at the inception of the contract. It is not adjusted to reflect subsequent changes in the standalone selling prices of those goods or services. What is the best evidence of standalone selling price?

Step 5 allows an entity to recognize revenue when (or as) each performance obligation is satisfied. Revenue is recognized in line with the pattern of transfer. If an entity does not satisfy its performance obligation over time, it satisfies it at a point in time and revenue will be recognized when control is passed at that point in time. Which of the following factors may not indicate the passing of control?

Which of the following is true regarding discounts offered on a bundle of products/services?

An entity can only include variable consideration in the transaction price to the extent that it is highly probable that a subsequent change in the estimated variable consideration will not result in a significant revenue reversal. What action should the entity take if it is not appropriate to include all of the variable considerations in the transaction price?

Which one of the following conditions is not allowed when performance conditions are satisfied over time?

In general, contract costs incurred in relation to a contract with a customer must be:

A company enters into a construction contract to build a warehouse for a customer. The agreed price is Rs.20 million and the specified completion date is 31 October 2020. However, the contract provides that the company should receive an incentive payment of a further Rs.2.5 million if the warehouse is completed before 30 June 2020. Similarly, the price will be reduced by Rs. 2 million if the warehouse is not completed until after 31 December 2020. The company estimates that there is a 15% probability that the warehouse will be completed before 30 June 2020, an 80% probability that it will be completed by 31 October 2020 and a 5% probability that it will not be completed until after 31 December 2020. What is the expected value of the transaction price for this contract?