IFRS 15 Revenue Recognition Analysis
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MannetjieIFRS 15 Revenue Recognition Analysis
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MannetjieQuestion 1
Fruits Limited signed contracts (within the scope of IFRS 15) with various customers in the current
financial year.
Fruits Limited entered into a contract of sale with Grape Limited for widgets worth $1 050 000. The
contract stipulates a $105 000 early settlement discount. Grape Limited often takes advantage of
this discount. At contract inception, Fruits Limited expects that the customer will qualify for the early
settlement discount.
Later in the financial year, Fruits Limited concluded a contract with Litchi Limited. The contract was
also for widgets. The widgets were worth $1 050 000. The contract includes a rebate of $420 000 to
Litchi Limited should Litchi Ltd meet specific criteria. At contract inception, Fruits Limited expects
Litchi Limited to qualify for the rebate (a price reduction).
Fruits Limited finalised a contract with Peach Limited for an amount of $1 050 000. The contract
stipulates that Fruits Limited is required to transfer the goods immediately whilst payment will only
be made 6 months later.
Lastly, Fruit Limited signed a contract with Tangerine Limited that was similar to the one signed with
Peach Limited, with the exception of the settlement date. Tangerine Limited was only required to
settle the contract price in two year’s time.
Assume that a discount rate of 10% is considered appropriate.
Required:
Determine (with supporting calculations) the transaction price for the contract with Grape Limited
and Litchi Limited. Provide supporting journal entries.
Question 2
The Fleet Street Company is a media company that owns various newspaper and magazine titles that
are distributed throughout the country. The company sells each of its titles based on readily
available selling prices.
Its most popular titles, and the related stand-alone selling price for each are as follows:
Title Selling price ($)
Vuvuzela magazine 25
Dabble magazine 18
Special edition newspaper 12
Mainstream newspaper 14
Digital newspaper Not sold on its own
The company offers two types of bundles: a magazine bundle (i.e. containing Vuvuzela and
Dabble) that retails for $39 and the newspaper bundle (i.e. containing the Special Edition
and Mainstream newspaper) that retails for $21.
During the festive season, the company offered its customers a chance to buy a bundle of
all the newspaper and magazine titles for a fee of $63. This offer, which is marketed as the
Festive Bundle, also includes one-moth’s access to the digital newspaper. The digital
newspaper was launched during the festive season and has never been sold on its own
before. The company estimates that the cost of providing access to the digital newspaper is
$3 for each user. A profit margin of 16% is considered appropriate.
Required:
Show how the transaction price for the newspaper bundle and the festive bundle should
be allocated.
Question 3
Mr X is the newly appointed accountant of A Ltd, a company that develops computer software. The
end of the reporting period of A Ltd is 30 September.
A Ltd develops and sells software to its clients and also offers an on-site service contract. The
software designed by A Ltd can only be installed by A Ltd. The software cannot be used by customers
without A Ltd installing it.
On-site service contracts are regularly provided to customers separately from the supply of software.
It is also possible to obtain software from A Ltd without an on-site service.
The company concluded a contract with C Bank on 1 February 2017 in terms of which a large system
has to be designed for the bank. The system is purposely designed for the bank and cannot be used by
other customers. The software was delivered to the bank in Botswana on 25 September 2017. The
bank acknowledged receipt of the software on 30 September 2017 but still awaited the installation of
the software which took place only on 10 October 2017. The contract is cancellable if the software is
not installed to the satisfaction of the bank. Included in the purchase price is a service contract for two
years.
Payment is due on date of installation. C Bank settled the amount of $950 000 on 10 October 2017.
The stand alone selling prices of similar software and on site services were as follows on 1 February
2017:
Computer software: $850 000
On-site service: $100 000
The accountant has included the total revenue from the transaction of $950 000 in the statement of
comprehensive income for the reporting period ended 30 September 2017.
Required:
a) Discuss whether the accounting treatment for the above transaction results in fair presentation
by referring to IFRS 15 Revenue from contracts with customers.
b) Briefly discuss the recognition of the cost relating to the design that A Ltd incurred up to 25
September 2017.
