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IFRS 15 – Revenue from Contract with

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Customers

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Hassaan Khanani ACA

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 IFRS 15 – Revenue from Contract With Customers

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 IFRS 15 – Examples

Naughtiness in step 1- identify the contract

1) Mr. Tamimi agreed on March 1, 2017 to sell 5 cutting machines to Hassaan Enterprises. Due to
some deficiency in drafting the agreement each party’s rights cannot be identified. On March
31, 2017 Mr. Tamimi delivered the goods and these were accepted by Hassaan Enterprises.
After 10 days of delivery i.e. April 10, 2017 Hassaan Enterprises made the full payment and the
payment is nonrefundable. When should Tamimi record the revenue?

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2) A Mughees agreed to deliver 30 smart phones to Kubra. As per the agreement A
mughees can cancel the contract any time before delivering w/out penalty is there a

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contract?

Naughtiness in Step 2 - performance in obligation

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3) Moin & Co selling washing machine for Rs 10,000 & also provides following free gifts.
Free service & maintenance for 1 year

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1 kg of washing powder Nirma
A discount voucher of 10% on next purchase.
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How many obligations?

4) Software house has agreed with Hamza that it will deliver a software & will also provide
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support service & software updates? How many? (ICAP last attempt)

5) Mufta Ibrahim subscribe to a six month magazine subscription & rec a free fidget
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spinner How many?

6) Mr. Ahmed promises Mr. Noman to build him a wall. He will also arrange bricks himself
-H

for building wall … Kitni?

Naughtiness in Step 3: Transaction Price

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7) Variables Consideration: Fatimay & Co enters in to a contract to build oil rig for 100,000.
If oil rig not completed on time there will be a penalty of 20,000, in past 90% time
Fatimay has completed on time. How much TP
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8) Time value : Hansmukh sells good to Hania worth Rs 5M, payment will be made after
two years. Rate 10%
9) Non cash consideration: Entity Erum will build wall for entity Mahnoor against 1,000
shares of entity Mahnoor at the time of contract shares were Rs 50 each & at time of
completion of contract Rs 52 each ?

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 10) Incentive to customer Mr. Qazi will teach FA1 in KnS for next 6 months for Rs 150,000.
Mr. Qazi will pay Rs 5000 to KnS back for Admin Expenses How much Mr. will record as
revenue

Naughtiness in Step 4: Allocation of Transaction Prices

11) Two Obligation one transaction price (No allotment Needed)

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Manish receives an order from customer for a computer as well as 12 months technical support

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on 1 march 2017. He deliver computer same day & customer paid total Rs 42000. Computer
sells for 30,000 & technical support 12,000
Req: Manish treatment in Y/E Dec 2017

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12) Two Obligation one transaction price need allotment
Saad purchase I phone on a pay monthly 12 month basis, under the contract with KnS terms are

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as follows
Saad receive I Phone on 1 Jan 2017
Saad pays monthly fees of RS 2000 which includes unlimited free minutes
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Customer may purchase IPhone from knS @ Rs 5000 without payment plan. They may enter
into free minutes plan without I Phone for 1750/ Month. KnS Y/E is June 30 2017
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Other Naughtiness

13) A consultancy firm agrees to provide services to leading college. A nonrefundable advance
as

was taken on 1 Jan 2017. College was shifted in March 2017 & contract was finished. How much
revenue should be recognized & when?
-H

14) Adil Ltd. enters into 2 separate agreements with customer X.

1. Agreement 1: Deliver 10,000 bricks for Rs. 100,000
2. Agreement 2: Build a boundary wall for Rs. 20,000
The two agreements should be combined and considered as a one agreement because contracts are
nS

negotiated with a single commercial objective of building a wall. The price of two agreements is
interdependent. Adil Ltd. is probably charging high price for bricks to compensate for the discounted
price for building the wall.
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 IFRS 15 – Revenue from Contract with Customers

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Example : Incremental Costs that expense d out

Avinash has awarded his sales team an extra bonus of Rs 50000 for bringing sales contract on 1 Jan
2017. Products are to be delivered by March 2017 . What is the treatment of this Rs 50,000

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Autumn 16

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Autumn 18

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Spring 17

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Spring 19

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Autumn 20

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 MCQ's

01. Which of the following is not one of the 5 steps for recognizing revenue according to IFRS 15 Revenue
from contracts with customers?
(a) Identify the contract

(b) Assess the likelihood of economic benefits

(c) Determine the contract price

(d) Allocate the transaction price to the performance obligations in the contract.

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02. Whale Limited (WL) is an agent who works on behalf of Dolphin, a famous performer. WL has just

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collected Rs. 100 million from a promoter in terms of ticket sales for a recent show done by Dolphin.
WL earns commission of 10% in relation to Dolphin's work.
What is the correct double entry for the receipt of the Rs? 100 million?

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(a) Dr Cash Rs. 100 million
Dr Trade Receivables Rs. 10 million
Cr Trade payables Rs. 100 million

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Cr Revenue Rs. 10 million

(b) Dr Cash Rs. 100 million

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Dr COS Rs. 90 million
Cr Revenue Rs. 100 million
aa

Cr Trade payables Rs. 90 million

(c) Dr COS Rs. 90 million

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Dr Cash Rs. 10 million

Cr Revenue Rs. 100 million
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(d) Dr Cash Rs. 100 million

Cr Revenue Rs. 10 million
-H

Cr Trade payables Rs. 90 million

03. 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 of providing this service will be Rs. 300,000.
nS

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?
K

(a) Rs. 3,343,750

(b) Rs. 3,250,000

(c) Rs. 3,375,000

(d) Rs. 4,000,000

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04. 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?
(a) Agency sales of Rs. 2.5 million on which RL is entitled to a commission of 10%.

(b) Sale proceeds of Rs. 20 million for motor vehicles which were no longer required by RL

(c) Sales of Rs. 15 million on 30 September 2014. The amount invoiced to and received from the
customer was Rs. 18 million, which includes Rs. 3 million for ongoing servicing work to be done
by RL over the next two years.

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(d) Sales of Rs. 20 million on 1 October 2013 to an established customer who (with the agreement
of RL) will make full payment on 30 September 2015. RL has a cost of capital of 10%.

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05. Cat Limited (CL) sold and installed an item of machinery for Rs. 800,000 on 1 November 2017. Included
within the price was 2 years servicing contract which has a value of Rs. 240,000 and a fee for installation

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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?

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(a) Rs. 530,000

(b) Rs. 680,000

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(c) Rs. 560,000

(d) Rs. 580,000

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06. 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.
as

How should this discount be applied in relation to the sale of the machinery?
(a) Machine only
-H

(b) Machine and Installation only

(c) Machine and Service only

(d) Machine, Installation and Service

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07. Cheetah Limited (CL) works as an agent for a number of smaller contractors, earning 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.
K

What adjustment needs to be made to revenue in respect of the commission sales?

(a) Reduce revenue by Rs. 6 million

(b) Reduce revenue by Rs. 5.4 million

(c) Increase revenue by Rs. 600,000

(d) No adjustment is required

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08. 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.

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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

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(a) A Rs. 40 and B Rs. 55 and C Rs. 45

(b) A Rs. 29 and B Rs. 39 and C Rs. 32

(c) A Rs. 40 and B Rs. 33 and C Rs. 27

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(d) A Rs. 40 and B Rs. 27 and C Rs. 33

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09. 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

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Product A 50
Product B 25

Product C 75
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Total 150

Allocate the transaction price of Rs. 100 to Product A, B and C in accordance with IFRS 15
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(a) A Rs. 50 and B Rs. 25 and C Rs. 75

(b) A Rs. 33 and B Rs. 17 and C Rs. 50

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(c) A Rs. 33 and B Rs. 50 and C Rs. 17

(d) A Rs. 17 and B Rs. 33 and C Rs. 50

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

(a) Rs. 2 million in relation to a fee negotiated for an advertising contract for one of HL’s clients. HL
acted as an agent during the deal and is entitled to 10% commission.
K

(b) Rs. 500,000 relating to a sale of specialized equipment on 31 December 2011. The full sales
value was Rs. 700,000 but Rs. 200,000 relates to servicing that HL will provide over the next 2
years, so HL has not included that in revenue this year.

(c) Rs. 800,000 relating to a sale of some surplus land owned by HL.

(d) Rs. 1 million in relation to a sale to a new customer on 31 December 2011. Control passed to the
customer on 31 December 2011. The Rs. 1 million is payable on 31 December 2013. Interest
rates are 10%.

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11. 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?
(a) Rs. 23.105 million

(b) Rs. 23.000 million

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(c) Rs. 20.909 million

(d) Rs. 24.150 million

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12. 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?

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(a) Determining the transaction price
(b) Recognizing revenue when a performance obligation is satisfied

(c) Identifying the separate performance obligations

(d) Allocating the transaction price to the performance obligations

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13. 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.
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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
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Total costs incurred 50,000

How to recognize the above costs?
(a) Capitalize Rs. Nil and expense Rs. 50,000
-H

(b) Capitalize Rs. 10,000 and expense Rs. 40,000

(c) Capitalize Rs. 25,000 and expense Rs. 25,000

(d) Capitalize Rs. 50,000 and expense Rs. Nil

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14. 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 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
K

product on 31 March 2019.

What journal entry is required to be passed on 31 January 2019?

(a) No entry is required

(b) Debit Cash Rs. 1,000 and Credit Contract liability Rs. 1,000

(c) Debit Receivables Rs. 1,000 and Credit Contract liability Rs. 1,000
(d) Debit Receivables Rs. 1,000 and Credit Revenue Rs. 1,000

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15. 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 above?

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(a) Revenue Rs. Nil and Contract Liability Rs. 10,000

(b) Revenue Rs. 300 and Contract Liability Rs. 9,700

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(c) Revenue Rs. 9,700 and Contract Liability Rs. 300

(d) Revenue Rs. 10,000 and Contract Liability Rs. Nil

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16. Mechanical Limited (ML) sells machines, and also offers installation and technical support services. The
individual selling prices of each product are shown below.
Sale price of goods Rs. 75,000
Installation
One-year service
Rs. 30,000
Rs. 45,000
K
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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?
sa

Rs.
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17. Car Limited (CL) sold a large number of vehicles 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%.
-H

How much should initially be recorded in revenue in respect of the sale of vehicles spare parts in the
statement of profit or loss for the year ended 31 December 2017?
Rs.
nS

18. Golden Limited enters into a contract with a major chain of retail stores. The customer commits to buy
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.
K

By the 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?

Rs.

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19. 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 the technical support?
Rs.

20. Jupiter Limited (JL) entered into a two-year contract on 1 January 2017, with a customer for the
maintenance of computer network. JL has offered the following payment options:

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Option 1: Immediate payment of Rs. 200,000.
Option 2: Payment of Rs. 110,000 at the end of each year.

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The applicable discount rate is 6.596%.
What amount of revenue should be recognized under option 2 on 31 December 2017?

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Rs.

21. Which two standards have been replaced by IFRS 15 Revenue from Contracts with Customers?

(a)

(b)
IAS 20 Government Grants and IAS 36 Impairment of Assets

IAS 36 Impairment of Assets and IAS 11 Construction Contracts

K
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(c) IAS 18 Revenue and IAS 20 Government Grants

(d) IAS 18 Revenue and IAS 11 Construction Contracts

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

(a) Prudence

(b) Relevance
-H

(c) Substance over form

(d) Verifiability

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

(a) Revenue includes cash received from share issues

(b) Revenue includes cash received from borrowings

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(c) Revenue may arise from either ordinary activities or extraordinary activities

(d) Revenue arises from ordinary activities only

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

(a) It is approved and enforceable, can identify each party rights, payment terms, and probable to
collect consideration
(b) It is approved, can identify each party rights, payment terms, has commercial substance and
probable to collect consideration
(c) It is approved and enforceable, can identify each party rights, has commercial substance and
probable to collect consideration

ni
(d) It is approved, can identify payment terms, has commercial substance and probable to collect
consideration

na
25. 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?
(a) Each party's rights with regard to the goods or services concerned can be identified

ha
(b) The payment terms can be identified

(c) The entity and the customer have approved the contract and are committed to perform their
contractual obligations

(d)

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It is certain that the entity will collect the consideration to which it is entitled
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26. 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?
sa

(a) The passing of the risks and rewards to the customer

(b) The distinctiveness of the good or service

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(c) The identification of the payment terms

(d) The enforceability of the contract

-H

27. 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 consideration. How does the entity estimate the amount of
the variable consideration?
nS

(a) The expected value or the most likely amount whichever best predicts the consideration

(b) The lower of the expected value or the most likely amount

(c) The choice of the expected value or the most likely amount
K

(d) The higher of the expected value or the most likely amount

28. 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 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?

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0332 - 2468189 Page 25 of 37
 (a) An estimate that maximizes the use of observable inputs

(b) The observable price of a good or service when the entity sells that good or service separately

(c) Unadjusted market prices for similar goods or services

(d) Expected cost

29. 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

ni
passed at that point in time. Which of the following factors may not indicate the passing of control?
(a) The present right to payment for the asset

na
(b) The customer has legal title to the asset

(c) The entity has physical possession but has transferred a portion of the economic risks

ha
(d) The entity has transferred physical possession of the asset

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

(a)

(b) K
The discount should be applied across each performance obligation in the contract

The discount should be recorded within cost of sales

an
(c) The discount should be applied to the largest component of the contract

(d) The discount should be recorded as an administrative cost

sa

31. 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
as

revenue reversal. What action should the entity take if it is not appropriate to include all of the variable
consideration in the transaction price?

(a) The entity should not include any of the variable consideration
-H

(b) The entity can use its judgment in all matters such as this
(c) The entity should assess whether it should include part of the variable consideration subject to
the revenue reversal test

(d) The entity should assess whether it should include part of the variable consideration without the
nS

need to use the revenue reversal test

32. Which one of the following condition is not allow when performance condition to be satisfied over time?
K

(a) the customer simultaneously receives and consumes the benefits provided by the entity’s
performance as the entity performs

(b) the entity’s performance creates or enhances an asset that the customer controls as the asset is
created or enhance

(c) they customer has paid the consideration in advance and goods / services are still to be received
(d) the entity’s performance does not create an asset with an alternative use to the entity

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

(a) Recognized as an expense when incurred

(b) Recognized as an asset if they relate to a performance obligation which has been satisfied
(c) Recognized as an asset if they are not expected to be recovered

(d) Recognized as an asset if they relate to a performance obligation which has not yet been satisfied

34. A company enters into a construction contract to build a warehouse for a customer. The agreed price

ni
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

na
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.

ha
What is the expected value of the transaction price for this contract?

(a) Rs. 20 million

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(b) Rs. 20.275 million

(c) Rs.20.5 million

an
(d) Rs.20.75 million
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as
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0332 - 2468189 Page 27 of 37
 IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS
Wehshi Practice
Question 1. [5 Step model] [IFRS Kit – IFRS Box]
Telecom operator, ABC Corp. entered into a contract with Johnny on 1 July 20X1. In line with the
contract, Johnny subscribes for ABC's monthly plan for 12 months and in return, Johnny receives free
handset from ABC Corp. Johnny will pay a monthly fee of Rs. 100. Johnny gets the handset immediately

ni
after contract signature. ABC sells the same handsets for Rs. 300 and the same monthly plans for Rs.
80/month without handset.

na
How should ABC recognize revenues from the contract with Johnny in 20X1 under IFRS 15?

Question 2. [Contracts that do not meet the criteria for contract under IFRS 15] [ICAP Study Text]

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Mr. Owais agreed on March 1, 2017 to sell 5 cutting machines to Axiom Enterprises. Due to some
deficiency in drafting the agreement each party’s rights cannot be identified. On March 31, 2017 Mr.
Owais delivered the goods and these were accepted by Axiom Enterprises. After 10 days of delivery i.e.
April 10, 2017 Axiom Enterprises made the full payment and the payment is nonrefundable.

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When should Owais record the revenue?
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Question 3. [Contract modification] [IFRS Kit – IFRS Box]
Ball PC, computer manufacturer, enters into contract with Forward University to deliver 300 computers
for total price of Rs. 600,000 (Rs. 2,000 per computer). Due to necessary preparation works, Forward
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University agrees to deliver computers in 3 separate deliveries during the forthcoming 3 months (100
computers in each delivery). Forward University takes control over the computers at delivery.
After the first delivery is made, Forward University and Ball PC amend the contract. Ball PC will supply
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200 additional computers (500 in total).

Scenario 1: The price for additional 200 computers was agreed at Rs. 388,000, being Rs. 1,940 per
computer. Ball PC provided a volume discount of 3% for additional delivery which reflects the normal
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discounts provided in similar contracts with other customers.

Scenario 2: The price for additional 200 computers was agreed at Rs. 268,000, being Rs. 1,340 per
computer. The price for additional computers was reduced significantly due to the following:
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- Ball PC provided a discount of 30% for additional delivery because it hopes for the future
cooperation with Forward University. As a result, initial price for additional products was set at Rs.
1,400 per computer.
- After initial delivery, Forward University discovered minor defects on 50 computers and as a result,
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Ball PC agreed to provide partial credit of Rs. 240 per computer. This credit is incorporated into the
new agreed price for additional 200 computers [Resulting price of (1,400*200-240*50)/200 =
1,340/computer].
Required: How shall Ball PC account for the contract modification under IFRS 15?
Note: Contract amendment was made after the first delivery. As of 31 December 20X1, Ball PC delivered
400 computers (300 as agreed initially and 100 under the contract amendment).

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Question 4. [Contract modification] [IFRS 15 Illustrative example 5]
On 1 January 2018, an entity promises to sell 120 products to a customer for Rs. 12,000 (Rs. 100 per
product). The products are transferred to the customer over a six-month period.
The entity transfers control of each product at a point in time. On 31 March 2018, after the entity has
transferred control of 60 products to the customer, the contract is modified to require the delivery of an
additional 30 products (a total of 150 identical products) to the customer. The additional 30 products
were not included in the initial contract.

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Case A - Additional products for a price that reflects the stand-alone selling price

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The price for additional 30 products is an additional Rs. 2,850 or Rs. 95 per product. The pricing for the
additional products reflects the stand-alone selling price of the products at the time of the contract
modification and the additional products are distinct from the original products.

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Case B—Additional products for a price that does not reflect the stand-alone selling price
The price for additional 30 products is an additional Rs. 2,400 or Rs. 80 per product. The pricing for the
additional products does not reflect the stand-alone selling price of the products at the time of the

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contract modification and the additional products are distinct from the original products.
However, the customer discovers that the initial 60 products transferred to the customer contained
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minor defects. The entity promises a partial credit of Rs. 15 per product to compensate the customer for
the poor quality of those products. The entity and the customer agree to incorporate the credit of Rs.
900 (Rs. 15 credit × 60 products) into the price that the entity charges for the additional 30 products.
Consequently, the contract modification specifies that the price of the additional 30 products is Rs.
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1,500 or CU50 per product. That price comprises the agreed-upon price for the additional 30 products of
Rs. 2,400, or Rs. 80 per product, less the credit of Rs. 900.
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Required: How shall the entity account for the contract modification under IFRS 15?

Question 5. [Distinct goods or services] [ICAP Study Text]

Pico Ltd. (PL) sells 10 washing machines for Rs. 20,000 each to a Retailer Co. (RC). PL also provides the
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following free of cost:

Free service and maintenance for 3 years
10 kg of washing powder every month for the next 18 months
A discount voucher for a 50% discount if next purchase is made in the next 6 months.
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Required: How many performance obligations are in the contract?

Question 6. [Distinct goods or services] [ICAP Study Text]

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A Builder Co. promises “to build Customer X a wall”. Builder Co will delivers the bricks to Customer X’s
premise and then will build the wall for Customer X
Required: How many performance obligations are in the contract?

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Question 7. [Explicit v/s implicit performance obligation] [IFRS Kit – IFRS Box]
(Similar to IFRS 15 illustrative example 12)
ABC Corp., producer of cleaning machines, sells their cleaning machines to various companies.
Determine the performance obligations in the following contracts:
1) In contract with the client A, ABC promises to deliver 10 cleaning machines for total price of Rs.
200,000. The contract A contains a clause about free repair and maintenance service within 2 years
after purchase.

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2) In contract with the client B, ABC promises to deliver 5 cleaning machines for total price of Rs.
100,000. No warranty is promised in the contract, however, ABC Corp. is well-known for its perfect

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customer services and providing 1-year free repair services in the past.
3) In contract with the client C, ABC promises to deliver 50 cleaning machines for total price of Rs.
1,000 000. No warranty is promised in the contract, and ABC usually does not provide any free

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services in the country of client C.
However, after the contract is signed, ABC offers to provide free maintenance service to any party
that purchases the cleaning machine.

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Question 8. [Distinct goods or services] [IFRS 15 Illustrative example 11]
An entity, a software developer, enters into a contract with a customer to transfer a software licence,
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perform an installation service and provide unspecified software updates and technical support (online
and telephone) for a two-year period. The entity sells the licence, installation service and technical
support separately.
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Case A - Distinct goods or services

The installation service includes changing the web screen for each type of user (for example, marketing,
inventory management and information technology). The installation service is routinely performed by
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other entities and does not significantly modify the software. The software remains functional without
the updates and the technical support.
Case B—Significant customization
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The contract specifies that, as part of the installation service, the software is to be substantially
customised to add significant new functionality to enable the software to interface with other
customised software applications used by the customer. The customised installation service can be
provided by other entities.
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Required: How many performance obligations are in the contract?

Question 9. [Non-cash consideration] [ICAP Study Text]

AX Ltd. (AXL) decides to take a contract to perform consulting service that would normally be valued at
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Rs. 50,000. AXL determines that the service is a single performance obligation. Customer (Company B)
agrees to pay AXL 1,000 shares of Company upon completion of services. Both accept the contract on 1
January 2017, when shares are valued at Rs. 50 a share. On 1 February 2017, AXL completes the
services, when shares are valued at Rs. 52 a share.
Required: How much revenue would be recognized.

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Question 10. [Non-cash consideration] [IFRS 15 Illustrative example 31]
An entity enters into a contract with a customer to provide consultancy service for one month. The
contract is signed on 1 January 2018 and work begins immediately.
In exchange for the service, the customer promises to pay 100 equity shares of per week of service (a
total of 400 shares for the contract). The terms in the contract require that the shares must be paid
upon the successful completion of each week of service.

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The fair value of 100 shares that are received upon completion of each weekly service are as follow:

Rs. per share

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st
Fair value at the end of 1 week of Jan 2018 50
nd
Fair value at the end of 2 week of Jan 2018 53
Fair value at the end of 3rd week of Jan 2018 57

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th
Fair value at the end of 4 week of Jan 2018 58

Required: Journalize the above.

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Question 11. [Consideration payable to a customer] [IFRS 15 Illustrative example 32]
An entity that manufactures consumer goods enters into a one-year contract to sell goods to a customer
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that is a large global chain of retail stores. The customer commits to buy at least Rs. 15 million of
products during the year. The contract also requires the entity to make a non-refundable payment of Rs.
1.5 million to the customer at the inception of the contract. The Rs. 1.5 million payment will compensate
the customer for the changes it needs to make to its shelving to accommodate the entity’s products.
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During the first month, the entity sold goods worth Rs. 2 million to the customer.
Required: Journalize the above.
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Question 12. [Transaction price – Significant financing component] [IFRS Kit – IFRS Box]
(Similar to IFRS 15 illustrative example 26)
Voyage ltd. intends to buy 30 trucks from Autocar, local car dealer. However, due to cash shortage,
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Voyage is not able to pay immediately after planned delivery, therefore Autocar agrees that Voyage
pays the price after 1 year.
Price per 1 truck is Rs. 32,000. However, Autocar agrees to receive payment in 1 year only if Voyage
accepts increased purchase price of Rs. 33,000 per truck. The Autocar’s cost of 1 truck is Rs. 28,000.
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Required: What should Autocar recognize in its financial statements and when?

Question 13. [Advance payment] [IFRS 15 Illustrative example 29]

An entity enters into a contract with a customer to sell an asset. Control of the asset will transfer to the
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customer in two years (ie the performance obligation will be satisfied at a point in time). The contract
includes two alternative payment options: payment of Rs. 5,000 in two years when the customer
obtains control of the asset or payment of Rs. 4,000 when the contract is signed. The customer elects to
pay Rs. 4,000 when the contract is signed.
Required: Journalize the above

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Question 14. [Penalty gives rise to variable consideration] [IFRS 15 Illustrative example 20]
On 1 November 2018, an entity enters into a contract with a customer to build an asset for Rs. 1 million.
In addition, the terms of the contract include a penalty of Rs. 100,000 if the construction is not
completed within three months from the date of contract.
By the year ended 31 December 2018, the contract is 60% completed and the entity expects that the
construction will not be completed by 31 January 2019. However, the construction is completed on 28
January 2019.

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Required: Journalize the above.

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Question 15. [Variable consideration - Sale with a right of return] [BDO - IFRS in Practice]
(Similar to IFRS 15 illustrative example 22)
On 1 January 2014, a vendor (a retailer) sells 100 identical goods to different customers, at a sales price

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of Rs. 100 (total Rs. 10,000). The cost of each good is Rs. 60. Customers have a right to return the good
for a period of 30 days from the original purchase, in return for a full refund.

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Based on substantial historic experience and on future expectations, the vendor estimates that three of
the goods will be returned. The amount and quality of evidence available means that the vendor is able
to conclude that it is highly probable that there will not be a significant reversal of revenue if it
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recognizes revenue attributable to the 97 goods that it does not expect to be returned.
Required: Journalize the above transaction.
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Question 16. [Variable consideration - Sale with a right of return]

[CFAP Past paper – Sum 2019, Q4(iv), 4 marks]
Fiji Limited (FL) is involved in the manufacturing and trading of consumer goods. The following
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transactions/events have occurred during 2018.

(iv) In December 2018, FL delivered 35,000 units of one of its products to Dutch Limited (DL) for Rs.
15 million. DL obtained the control upon delivery and immediately paid the full amount which
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was credited to revenue. However, DL has been allowed to return unused units within 90 days
and receive a full refund. Such rights have not been granted by FL to any customer in the past.
Required: Discuss how the above transactions/events should be dealt with in FL’s books for the year
ended 31 December 2018. (Show all calculations wherever possible. Also mention any additional
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information needed to account for the above transactions/events)

Question 17. [Volume discount incentive] [IFRS 15 Illustrative example 24]

An entity enters into a contract with a customer on 1 October 2018 to sell Product A for Rs. 100 per unit.
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If the customer purchases more than 1,000 units of Product A in next 12 months, the contract specifies
that the price per unit is retrospectively reduced to Rs. 90 per unit.
By the year ended 31 December 2018, the entity sells 75 units of Product A to the customer. The entity
estimates that the customer’s purchases will not exceed the 1,000-unit threshold required for the
volume discount.

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By the half year ended 30 June 2019, the entity’s customer acquires another company and the entity
sells an additional 500 units of Product A to the customer. In the light of the new fact, the entity
estimates that the customer’s purchases will exceed the 1,000-unit threshold.
Required: Journalize the above transaction.

Question 18. [Allocating a discount] [IFRS 15 Illustrative example 34]

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

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selling prices:
Product Price (Rs.)

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A 40
B 55
C 45

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Case A - Allocating a discount to all the performance obligations
The entity enters into a contract with a customer to sell Products A, B and C in exchange for Rs. 100. The
entity will satisfy the performance obligations for each of the products at different points in time.

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Case B - Allocating a discount to one or more performance obligations
The entity enters into a contract with a customer to sell Products A, B and C in exchange for Rs. 100. The
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entity will satisfy the performance obligations for each of the products at different points in time.
In addition, the entity regularly sells Products B and C together for CU60.
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Required: Allocate the transaction price to the identified performance obligations.

Question 19. [Contract costs] [ICAP Practice Kit - AAFR]

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DX Ltd owns and operates radio stations. The main revenue stream is advertising revenue. Contracts are
signed with various businesses for the sale of airtime. The account executives obtain these contracts and
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are compensated through a 5% commission on the total contract price for each new contract signed.
Executive B has obtained a new two-year advertising contract with Company. Total contract costs
related to this contract are as follows:
External legal fees for due diligence = Rs. 20,000
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Legal fees contract drafting = Rs. 10,000

Commission paid to the account executive = Rs. 7,500
Meals and entertainment incurred during the sales process Rs. 1,750
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Creative Director’s time salary allocation of Creative Director to develop on-air ad = Rs. 1,500
Actors amounts paid to external actors to record the on-air ad = Rs.750
Required: Discuss whether to capitalize or expense out each cost component?

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Question 20. [Costs that give rise to an asset] [IFRS 15 Illustrative example 37]
An entity enters into a service contract to manage a customer’s information technology data centre for
five years. The contract is renewable for subsequent one-year periods. The average customer term is
seven years. The entity pays an employee a Rs. 10,000 sales commission upon the customer signing the
contract.

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Before providing the services, the entity designs and builds a technology platform for the entity’s
internal use that interfaces with the customer’s systems. That platform is not transferred to the

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customer, but will be used to deliver services to the customer.
The initial costs incurred to set up the technology platform are as follows:
Amount in Rs.

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Design services 40,000
Hardware 120,000
Software 90,000

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Migration and testing of data centre 100,000
Total costs 350,000
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In addition to the initial costs to set up the technology platform, the entity also assigns two employees
who are primarily responsible for providing the service to the customer.
Required: How should the Company recognize above expenses in its financial statements?
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Question 21. [Contract liability and receivable] [IFRS 15 Illustrative example 38]
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Case A - Cancellable contract

On 1 January 2019, an entity enters into a cancellable contract to transfer a product to a customer on 31
March 2019. The contract requires the customer to pay consideration of Rs. 1,000 in advance on 31
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January 2019. The customer pays the consideration on 1 March 2019. The entity transfers the product
on 31 March 2019.
Case B – Non-cancellable contract
On 1 January 2019, an entity enters into a non-cancellable contract to transfer a product to a customer
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on 31 March 2019. The contract requires the customer to pay consideration of Rs. 1,000 in advance on
31 January 2019. The customer pays the consideration on 1 March 2019. The entity transfers the
product on 31 March 2019.
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Required: Journalize the above transaction

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.

Question 22. [Contract asset] [IFRS 15 Illustrative example 39]

(Similar to IFRS 15 Illustrative example 39)
X Limited enters into a contract to transfer Products A and B to Y Limited in exchange for Rs. 1,000.
Product A is to be delivered on 28 February.
Product B is to be delivered on 31 March.

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The promises to transfer Products A and B are identified as separate performance obligations. Rs.400 is
allocated to Product A and Rs.600 to Product B. Revenue is recognised when control of each product

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transfers to Y Limited.
Payment for the delivery of Product A is conditional on the delivery of Product B. (i.e. the consideration
of Rs. 1,000 is due only after X Limited has transferred both Products A and B to Y Limited). This means

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that X Limited does not have a right to consideration that is unconditional (a receivable) until both
Products A and B are transferred to Y Limited.
Required: Journalize the above transaction.

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Question 23. [Receivable recognized for the entity’s performance] [IFRS 15 Illustrative example 39]
An entity enters into a contract with a customer on 1 January 2019 to transfer products to the customer
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for Rs. 150 per product. If the customer purchases more than 1 million products in a calendar year, the
contract indicates that the price per unit is retrospectively reduced to Rs. 125 per product.
Consideration is due when control of the products transfer to the customer. Therefore, the entity has an
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unconditional right to consideration (i.e. a receivable) for Rs. 150 per product until the retrospective
price reduction applies (i.e. after 1 million products are shipped).
In determining the transaction price, the entity concludes at contract inception that the customer will
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meet the 1 million products threshold and therefore estimates that the transaction price is Rs. 125 per
product.
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Required: Journalize the first shipment to the customer of 100 products.

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Question 24. [Customer options for additional goods or services - Option that provides the customer
with a material right (discount voucher)] [IFRS Illustrative examples 49]
An entity enters into a contract for the sale of Product A for Rs. 100. As part of the contract, the entity
gives the customer a 40% discount voucher for any future purchases up to Rs. 100 in the next 30 days.
The entity intends to offer a 10% discount on all sales during the next 30 days as part of a seasonal
promotion. The 10% discount cannot be used in addition to the 40% discount voucher.

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Required: Explain how would you treat the above transaction? Journalize if the entity expects that the
customer will redeem the voucher and will make future purchase of goods worth Rs. 50.

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Question 25. [Customer loyalty program] [IFRS Illustrative examples 52]
An entity has a customer loyalty program that rewards a customer with one customer loyalty point for
every Rs. 10 of purchases. Each point is redeemable for a Rs. 1 discount on any future purchases of the

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entity’s products. During a reporting period, customers purchase products for Rs. 100,000 and earn
10,000 points that are redeemable for future purchases. The consideration is fixed and the stand-alone
selling price of the purchased products is Rs. 100,000. The entity expects 9,500 points to be redeemed.
The entity estimates a stand-alone selling price of Rs. 0.95 per point (totaling Rs. 9,500) on the basis of

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the likelihood of redemption.

The points provide a material right to customers that they would not receive without entering into a
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contract. Consequently, the entity concludes that the promise to provide points to the customer is a
performance obligation.

At the end of the first reporting period, 4,500 points have been redeemed and the entity continues to
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expect 9,500 points to be redeemed in total.

Required: Explain how would you treat the above transaction?

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Question 26. [Bill-and-hold arrangement] [IFRS Illustrative example 63]
An entity enters into a contract with a customer on 1 January 20X8 for the sale of a machine and spare
parts. The manufacturing lead time for the machine and spare parts is two years.
On 31 December 20X9, the customer pays for the machine and spare parts, but only takes physical
possession of the machine. Although the customer inspects and accepts the spare parts, the customer
requests that the spare parts be stored at the entity’s warehouse because of its close proximity to the
customer’s factory.

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The customer has legal title to the spare parts and the parts can be identified as belonging to the
customer. Furthermore, the entity stores the spare parts in a separate section of its warehouse and the

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parts are ready for immediate shipment at the customer’s request. The entity expects to hold the spare

parts for two to four years and the entity does not have the ability to use the spare parts or direct them

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to another customer.
Required: Explain how would you treat the above transaction?

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Question 27. [Repurchase agreement] [ICAP Practice Kit - AAFR]
On 5 March 2017 Parvez Limited sold goods to a bank for Rs. 18m cash and agreed to repurchase the
goods for Rs. 19m cash on 5 July 2017. The goods will be shifted to a storage facility under bank’s
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control and security.

Required: Discuss how the above transactions should be accounted for

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