REVENUE (without ethics)

Q22. Ans)
A) According to IFRS 15 of revenue of contract from customers it is
stated that revenue from customer should be recognised when the
contract has been fulfilled i.e when the control is transferred.
In this question the calibra co. has recognised control as at the
signing date itself which is not a correct way to recognise revenue.
It should have recognised the revenue when the control has been
passed to customer. As customer can choose between $8.5 at the
date of signing of contract or $9.55 at the transfer of control it has a
choice where to pay interest or not.
In this question customer has chosen to pay $8.5 at the date of
signing of contract so it has to incur borrowing cost at 6% rate p.a
Borrowing cost are costs which are directly attributable to the
construction , acquisition or purchase of an asset which to be
treated as a part of asset. So the borrowing cost will be added in the
cost of asset over time ( capitalised over time ).
Borrowing cost will be calculated @6% on $8.5 million which will be
0.51 for first year and $0.54 for second year which will be added to
cost of asset.
B) Journal entries
At date of signing of contract
1) Bank Dr $8.5 million
To liablity $8.5 million
Year 1 (Borr. Cost )
2) FC Dr $0.51 M
To liability $0.51 M
Year 2 (Borr. Cost )
3) FC Dr $0.54 M
To liability $0.54 M
At transfer of control
Liability $9.55M
To revenue $9.55M