Professional Documents
Culture Documents
Revenue (BPP)
Revenue (BPP)
1. A company entered into a contract on 1 January 20X5 to build a factory. The total contract
revenue was $2.8 million. At 31 December 20X5 the contract was certified as 35% complete. Costs
incurred during the year were $740,000 and costs to complete are estimated at $1.4 million.
$700,000 has been billed to the customer but not yet paid. What amount will be recognised as a
contract asset or liability in respect of this contract in the statement of financial position as at 31
December 20X5?
2 Which of the following are acceptable methods of accounting for a government grant relating to
an asset in accordance with IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance?
(i) Set up the grant as deferred income (ii) Credit the amount received to profit or loss
(iii) Deduct the grant from the carrying amount of the asset
A (i) and (ii) B (ii) and (iv) C (i) and (iii) D (iii) and (iv)
3 On 1 October 20X2 Pricewell entered into a contract to construct a bridge over a river. The total
contract revenue was $50 million and construction is expected to be completed on 30 September
20X4. Costs to date are:
$m
The sales value of the work done at 31 March 20X3 has been agreed at $22 million and the
estimated cost to complete (excluding plant depreciation) is $10 million. The specialist plant will
have no residual value at the end of the contract and should be depreciated on a monthly basis.
Pricewell recognises satisfaction of performance obligations on the percentage of completion basis
as determined by the agreed work to date compared to the total contract price. What is the profit to
date on the contract at 31 March 20X3?
4. The following details apply to a contract where performance obligations are satisfied over time at
31 December 20X5.
REVENUE
The contract is agreed to be 45% complete at 31 December 20X5. What amount should appear in
the statement of financial as at 31 December 20X5 as a contract asset?
5. Sale and repurchase arrangements can be used to disguise the substance of loan transactions by
taking them 'off balance sheet'. In this case the legal position is that the asset has been sold but the
substance is that the seller still retains the benefits of ownership. Which one of the following is not a
feature which suggests that the substance of a transaction differs from its legal form?
C The asset has been transferred at a price substantially above or below its fair value.
6. Springthorpe entered into a three-year contract on 1 January 20X2 to build a factory. This is a
contract where performance obligations are satisfied over time. The percentage of performance
obligations satisfied is measured according to certificates issued by a surveyor. The contract price
was $12 million. At 31 December 20X2 details of the contract were as follows.
7. On 25 June 20X9 Cambridge received an order from a new customer, Circus, for products with a
sales value of $900,000. Circus enclosed a deposit with the order of $90,000. On 30 June Cambridge
had not completed credit checks on Circus and had not despatched any goods. Cambridge is
considering the following possible entries for this transaction in its financial statements for the year
ended 30 June 20X9.
(i) Include $900,000 in revenue for the year (ii) Include $90,000 in revenue for the year
(iii) Do not include anything in revenue for the year (iv) Create a trade receivable for $810,000
According to IFRS 15 Revenue from contracts with customers, how should Cambridge record this
transaction in its financial statements for the year ended 30 June 20X9?
REVENUE
A (i) and (iv) B (ii) and (v) C (ii) and (iv) D (iii) and (v)
8. Repro, a company which sells photocopying equipment, has prepared its draft financial
statements for the year ended 30 September 20X4. It has included the following transactions in
revenue at the stated amounts below. Which of these has been correctly included in revenue
according to IFRS 15 Revenue from contracts with customers?
B Sale proceeds of $20,000 for motor vehicles which 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 included $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 which, (with the agreement of
Repro), will be paid in full on 30 September 20X5. Repro has a cost of capital of 10%.
9. Yling entered into a contract in respect of which performance obligations are satisfied over time
on 1 January 20X4. The contract is expected to last 24 months. The price which has been agreed for
the contract is $5 million. At 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 total of the amounts
invoiced. Yling calculates the stage of completion of its performance obligations on contracts on the
basis of amounts invoiced to the contract price. What amount would be reported in Yling's
statement of financial position as at 30 September 20X4 as the contract asset arising from the above
contract?
10. Consignment inventory is an arrangement whereby inventory is held by one party but owned by
another party. It is common in the motor trade. Which TWO of the following indicate that the
inventory in question is consignment inventory?
11. A company receives a government grant of $400,000 on 1 April 20X6 to facilitate purchase on
the same day of an asset which costs $600,000. The asset has a five-year useful life and is
depreciated on a 25% reducing balance basis. Company policy is to account for all grants received as
deferred income. What amount of income will be recognised in respect of the grant in the year to 31
March 20X8? $ ……………..
12. Newmarket's revenue as shown in its draft statement of profit or loss for the year ended 31
December 20X9 is $27 million. This includes $8 million for a consignment of goods sold on 31
REVENUE
December 20X9 on which Newmarket will incur ongoing service and support costs for two years
after the sale. The supply of the goods and the provision of service and support are separate
performance obligations under the terms of IFRS 15 Revenue from contracts with customers. The
cost of providing service and support is estimated at $800,000 per annum. Newmarket applies a 30%
mark-up to all service costs. At what amount should revenue be shown in the statement of profit or
loss of Newmarket for the year ended 31 December 20X9? (Ignore the time value of money.) $........
13.What is the net amount that will be charged to operating expenses in respect of the server for
the year ended 31 March 20X3?
14 What amount will be presented under non-current liabilities at 31 March 20X3 in respect of the
grant?
15 Derringdo also sells a package which gives customers a free laptop when they sign a two-year
contract for provision of broadband services. The laptop has a stand-alone price of $200 and the
broadband contract is for $30 per month. In accordance with IFRS 15 Revenue from contracts with
customers, what amount will be recognised as revenue on each package in the first year?
16 Determining the amount to be recognised in the first year is an example of which step in the IFRS
15 5-step model?
17. Derringdo is carrying out a transaction on behalf of another entity and the finance director is
unsure whether Derringdo should be regarded as an agent or a principal in respect of this
transaction. Which one of the following would indicate that Derringdo is acting as an agent?
REVENUE
B Derringdo is not exposed to credit risk for the amount due from the customer.
Bridgenorth has undertaken a $5 million contract to repair a railway tunnel. The contract was signed
on 1 April 20X8 and the work is expected to take two years. This is a contract where performance
obligations are satisfied over time and progress in satisfying performance obligations is to be
measured according to % of work completed as certified by a surveyor. Bridgenorth has an
enforceable right to payment for performance completed to date. At 31 December 20X9 the details
of the contract were as follows:
18. What is the profit recognised for the year ended 31 December 20X8? $.........
19. What amount would have been included in trade receivables at 31 December 20X8? $........
22 If at 31 December 20X8 Bridgenorth had completed only 10% of the contract for costs of
$400,000 and felt that it was too early to predict whether or not the contract would be profitable,
what amount, if any, could Bridgenorth have recognised as revenue? $......................
A The activities of the subsidiary are dissimilar to the activities of the rest of the group.
REVENUE
B The subsidiary was acquired with the intention of reselling it after a short period of time.
C The subsidiary is based in a country with strict exchange controls which make it difficult for it to
transfer funds to the parent.
24. When negative goodwill arises IFRS 3 Business combinations requires that the amounts involved
in computing goodwill should first be reassessed. When the amount of the negative goodwill has
been confirmed, how should it be accounted for?
25. Which of the following is the criterion for treatment of an investment as an associate?
26. Which TWO of the following statements are correct when preparing consolidated financial
statements?
A A subsidiary cannot be consolidated unless it prepares financial statements to the same reporting
date as the parent.
B A subsidiary with a different reporting date may prepare additional statements up to the group
reporting date for consolidation purposes.
C A subsidiary's financial statements can be included in the consolidation if the gap between the
parent and subsidiary reporting dates is five months or less.
D Where a subsidiary's financial statements are drawn up to a different reporting date from those of
the parent, adjustments should be made for significant transactions or events occurring between the
two reporting dates.