[PFE: Tài liệu ôn thi] Session 2 (Phần 1)

Topic

Question types

Question index

MCQ

Revenue and other income

1. 5-step process (IFRS 15 – Revenue from contracts with customers)

1 - 3

2. Long-term/Construction contract - Contract profit/loss

4, 5

3. Long-term/Construction contract - Contract asset/liability

6, 7

4. Transaction price allocation (using stand-alone price)

8

Question 1: Which of the following items is not part of the ‘five step’ approach for revenue recognition as outlined in IFRS 15 Revenue from Contracts with Customers?

A.      Allocate the total price between the separate performance obligations in the contract

B.      All contracts must be in writing

C.      Recognize revenue when a performance obligation is satisfied

D.     Identify the contract

Step 1

Identify the contract

• Mutual Agreement

• Between 2+ parties

• With enforceable rights & obligations

Step 2

Identify the separate performance obligations within a contract

• Promises to transfer distinct goods or services to a customer.

• Must identify distinct performance obligations within a contract

Step 3

Determine the transaction price

Should consider:

• Variable consideration

• Non-cash consideration

• Consideration payable to customer

• Existence of significant financing component

Step 4

Allocate the transaction price to the performance obligations in the contract

Based on relative stand-alone price

Step 5

Recognize revenue when (or as) a performance obligation is satisfied

Determine if the contract is satisfied:

• Overtime

→ recognize gradually

• At the point of time

→  recognize at that point

Question 2: On 1 December 20X1, Wade receives an order from a customer for a computer as well as 12 months of technical support. Wade delivers the computer (and transfers its legal title) to the customer on the same day.

The customer paid $420 on 1 December 20X1. The computer normally sells for $300 and the technical support for $120.

Identify 5 steps applied to this transaction, according to IFRS 15.

Step 1

Identify the contract

- Mutual Agreement

- Between 2+ parties

- With enforceable rights & obligations

Step 2

Identify the separate performance obligations within a contract

- Promises to transfer distinct goods or services to a customer.

- Must identify distinct performance obligations within a contract

Step 3

Determine the transaction price

Should consider:

- Variable consideration

- Non-cash consideration

- Consideration payable to the customer

- Existence of significant financing component

Step 4

Allocate the transaction price to the performance obligations in the contract

Based on relative stand-alone price

Step 5

Recognize revenue when (or as) a performance obligation is satisfied

Determine if the contract is satisfied:

• Overtime

→ recognize gradually

• At the point of time

→ recognize at that point

Step 1

Identify the contract

There is an agreement between Wade and its customer for the provision of goods (the computer) and services (the technical support).

Step 2

Identify the separate performance obligations within a contract

There are two performance obligations within the contract:

• The supply of a computer

• The supply of technical support

Step 3

Determine the transaction price

The total transaction price is $420.

Step 4

Allocate the transaction price to the performance obligations in the contract

Based on stand-alone sales prices:

• $300 should be allocated to the sale of the computer

• $120 should be allocated to the sale of technical support.

Step 5

Recognize revenue when (or as) a performance obligation is satisfied

• Control over the computer has been passed to the customer so the full goods revenue of $300 should be recognized on 1 December 20X1.

• The technical support is provided over time, so revenue from this should be recognized over time. In the year ended 31 December 20X1, the revenue of $10 (1/12 × $120) should be recognized from the provision of technical support.

Question 3: Repro has prepared its draft financial statements for the year ended 30 September 20X4 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?

A.      Agency sales of $250,000 on which Repro is entitled to a commission of 10%.

B.      Sale proceeds of $20,000 for motor vehicles that were no longer required by Repro.

C.      Sales of $150,000 on 30 September 20X4. The amount invoiced to and received from the customer was $180,000, which includes $30,000 for ongoing servicing work to be done by Repro over the next two years.

D.     Sales of $200,000 on 1 October 20X3 to an established customer who (with the agreement of Repro) will make full payment on 30 September 20X5 Repro has a cost of capital of 10%.

Question 4: CN started a three‐year contract to build a new university campus on 1 April 20X4. The contract had a fixed price of $90 million. CN will satisfy the performance obligation over time. CN incurred costs to 31 March 20X5 of $77 million and estimated that a further $33 million would need to be spent to complete the contract.

CN measures the progress of contracts using work completed compared to the contract price. On 31 March 20X5, a surveyor valued the work completed to date at $63 million.

What are the correct amounts to be shown in revenue and cost of sales in the statement of profit or loss for the year ended 31 March 20X5?

Step 1

Determine Total profit/loss of the contract, by subtracting the total cost of completion from total contract revenue (price).

• Total revenue: usually given in the question.
• Total cost: consists of the cost incurred to date per question & estimated cost to be incurred in the future.

Step 2

Identify the percentage (%) of completion of the contract.

It can be measured by:

• Given in the question
• Using work completed compared to total contract revenue

Step 3

Decide how to treat the total profit/loss of Step 1.

If the contract results in:

• Total profit: account for the loss proportionally (according to the completion progress of the contract) to the P/L of the year per question.
• Total loss: immediately account for 100% of the loss to the P/L of the year per question.

Step 4

Present statement of profit or loss (P/L)

Using the equation: Revenue – Costs of sales = Profit/Loss

• Determine year-end revenue, profit/loss at first.
• Then compute the costs of sales by balancing the equation

$m

Step 1

Determine total profit/loss of the contract

Total revenue

90

Total cost

Incurred to date

(77)

Estimated future

(33)

–––––––

Total LOSS

(20)

–––––––

Step 2

Identify the % of completion

Progress = Work certified/Total revenue = 63/90 = 70%

Step 3

Decide how to treat the total profit/loss of Step 1.

The contract results in total loss → account 100% of the loss to the P/L

$m

Step 4

Determine cost of sales (in P&L)

Remember: Compute revenue, profit/loss first, then find costs off sales

Revenue (70% of 90)

63

Cost of sales (balancing figure to recognize full loss)

(83)

–––––––

FULL LOSS to be recognized immediately

(20)

–––––––

Question 5: BL entered into a contract with a customer on 1 November 20X4. The contract was scheduled to run for two years and has a sales value of $40 million. BL will satisfy the performance obligations over time.

At 31 October 20X5, the following details were obtained from BL’s records:

Applying IFRS 15 Revenue from Contracts with Customers, how much revenue and cost of sales should BL recognize in its statement of profit or loss for the year ended 31 October 20X5?

Step 1

Determine Total profit/loss of the contract, by subtracting total cost of completion from total contract revenue (price).

• Total revenue: usually given in the question.
• Total cost: consists of cost incurred to date per question & estimated cost to be incurred in the future.

Step 2

Identify the percentage (%) of completion of the contract.

It can be measured by:

• Given in the question
• Using work completed compared to total contract revenue

Step 3

Decide how to treat the total profit/loss of Step 1.

If the contract results in:

• Total profit: account for the loss proportionally (according to the completion progress of the contract) to the P/L of the year per question.
• Total loss: immediately account for 100% of the loss to the P/L of the year per question.

Step 4

Present statement of profit or loss (P/L)

Using the equation: Revenue – Costs of sales = Profit/Loss

• Determine year-end revenue, profit/loss at first.
• Then compute the costs of sales by balancing the equation

$m

Step 1

Determine total profit/loss of the contract

Total revenue

40

Total cost

Incurred to date

(16)

Estimated future

(18)

–––––––

Total PROFIT

6

–––––––

Step 2

Identify the % of completion

Progress = 45% (per question)

Step 3

Decide how to treat the total profit/loss of Step 1.

The contract results in total profit à account for the loss proportionally to the P/L

$m

Step 4

Determine cost of sales (in P&L)

Remember: Compute revenue, profit/loss first, then find costs off sales

Revenue (45% of 40)

18

Cost of sales (balancing figure)

(15.3)

–––––––

Gross profit (45% of 6)

2.7

–––––––

Question 6: Sugar has entered into a long‐term contract to build an asset for a customer, Hewer Sugar will satisfy the performance obligation over time and has measured the progress towards satisfying the performance obligation at 45% at the year-end.

The price of the contract is $8 million. Sugar has spent $4.5 million to date, but the estimated costs to complete are $5.5 million. To date, Hewer has paid Sugar $3 million.

What is the net liability that should be recorded in Sugar’s statement of financial position?

Step 1

Determine Total profit/loss of the contract, by subtracting the total cost of completion from total contract revenue (price).

• Total revenue: usually given in the question.
• Total cost: consists of the cost incurred to date per question & estimated cost to be incurred in the future.

Step 2

Identify the percentage (%) of completion of the contract.

It can be measured by:

• Given in the question
• Using work completed compared to total contract revenue

Step 3

Decide how to treat the total profit/loss of Step 1.

If the contract results in:

• Total profit: account the loss proportionally (according to the completion progress of the contract) to the P/L of the year per question.
• Total loss: immediately account for 100% of the loss to the P/L of the year per question.

Step 4

Present statement of profit or loss (P/L)

Using the equation: Revenue – Costs of sales = Profit/Loss

• Determine year-end revenue, profit/loss at first.
• Then compute the costs of sales by balancing the equation

Step 5

Determine contract asset/liability by presenting the statement of financial position (B/S)

Using the equation: Cost to date + Profit (- Loss) – Billed to customer = Contract asset/liability

• Total cost incurred to date: usually given
• Year-end profit/loss: from Step 4

→  The amount receivable from the customer

• Billed to customer →  Amount paid by the customer
• Contract asset: receivable > paid
• Contract liability: receivable < paid

$000

Step 1

Determine total profit/loss of the contract

Total revenue

8,000

Total cost

Incurred to date

(4,500)

Estimated future

(5,500)

–––––––

Total LOSS

(2,000)

–––––––

Step 2

Identify the % of completion

Progress = 45% (per question)

Step 3

Decide how to treat the total profit/loss of Step 1.

The contract results in total loss à account 100% of the loss to the P/L

$000

Step 4

Determine cost of sales (in P&L)

Remember: Compute revenue, profit/loss first, then find costs off sales

Revenue (45% of 8,000)

3,600

Cost of sales (balancing figure)

(1,600)

–––––––

FULL LOSS to be recognized immediately

(2,000)

–––––––

$000

Step 5

Determine contract asset/liability (in B/S)

Remember:

·       Contract asset: receivable > paid

·       Contract liability: receivable < paid

Cost to date

4,500

Loss

(2,000)

Less: Billed to customer

(3,000)

–––––––

Contract liability

(500)

–––––––

Question 7: Yling entered into a contract to construct an asset for a customer on 1 January 20X4 which is expected to last 24 months. The agreed price for the contract is $5 million. On 30 September 20X4, the costs incurred on the contract were $1.6 million, and the estimated remaining costs to complete were $2.4 million. On 20 September 20X4, Yling received a payment from the customer of $1.8 million which was equal to the full amount billed Yling calculates contract progress using the output method, on the basis of the amount billed compared to the contract price.

What amount would be reported as a contract asset in Yling’s statement of financial

position as of 30 September 20X4?

Step 1

Determine Total profit/loss of the contract, by subtracting total cost of completion from total contract revenue (price).

• Total revenue: usually given in the question.
• Total cost: consists of cost incurred to date per question & estimated cost to be incurred in the future.

Step 2

Identify the percentage (%) of completion of the contract.

It can be measured by:

• Given in the question
• Using work completed compared to total contract revenue

Step 3

Decide how to treat the total profit/loss of Step 1.

If the contract results in:

• Total profit: account for the loss proportionally (according to the completion progress of the contract) to the P/L of the year per question.
• Total loss: immediately account for 100% of the loss to the P/L of the year per question.

Step 4

Present statement of profit or loss (P/L)

Using the equation: Revenue – Costs of sales = Profit/Loss

• Determine year-end revenue, profit/loss at first.
• Then compute the costs of sales by balancing the equation

Step 5

Determine contract asset/liability by presenting the statement of financial position (B/S)

Using the equation: Cost to date + Profit (- Loss) – Billed to customer = Contract asset/liability

• Total cost incurred to date: usually given
• Year-end profit/loss: from Step 4

→ Amount receivable from the customer

• Billed to customer → Amount paid by the customer
• Contract asset: receivable > paid
• Contract liability: receivable < paid

$m

Step 1

Determine total profit/loss of the contract

Total revenue

5

Total cost

Incurred to date

(1.6)

Estimated future

(2.4)

–––––––

Total PROFIT

1

–––––––

Step 2

Identify the % of completion

Progress = work certified/total price = 1.8/5 = 36%

Step 3

Decide how to treat the total profit/loss of Step 1.

The contract results in total profit à account the loss proportionally to the P/L

$m

Step 4

Determine cost of sales (in P&L)

Remember: Compute revenue, profit/loss first, then find costs off sales

Revenue (36% of 5)

1.8

Cost of sales (balancing figure)

(1.44)

–––––––

Gross profit (36% of 1)

0.36

–––––––

$m

Step 5

Determine contract asset/liability (in B/S)

Remember:

• Contract asset: receivable > paid
• Contract liability: receivable < paid

Cost to date

1.6

Profit

0.36

Less: Billed to customer

(1.8)

–––––––

Contract asset

0.16

–––––––

Question 8: A mobile phone company gives customers a free handset when they sign a two-year contract for the provision of network services. The handset has a standalone price of $100 and the contract is for $20 per month.

Allocating the transaction price to the performance obligations.

Stand-alone price ($)

%

Allocation

Handset

100

17% (100/580)

82

Contract - two years

480

83% (480/580)

398

Total Values

580

100%

480

Handset ($480 x 17%)

82

Contract ($480 - $82)/2

199