SPU

Financial Accounting 2A / Accounting 2A – 2024

Class practice question 1: Revenue

Example 1: Rendering services

Scrubbers Ltd signed an agreement whereby it is to scrape and re-plaster 50
buildings.
The total contract price is R80 000. The expected contract cost is R50 000.
The following details were available as of year-end 31/12/2008:
• According to the surveyor, R50 000 of the work had been done and may be
invoiced
• According to Scrubbers Ltd, 30 buildings had been scraped and re-plastered
• Costs of R35 000 have been incurred to date (31/12/2008) (Total expected
cost remains R50 000)
The following details were available as of year-end 31/12/2009
• According to the surveyor, R80 000 of the work had been done and may be
invoiced
• According to Scrubbers Ltd, 20 buildings had been scraped and re-plastered
• Costs of R15 000 have been incurred to date (31/12/2009) (Total expected
cost remains R50 000).
REQUIRED: Calculate the revenue amount to be recognised. Assume that the
percentage of completion is based on:
1. Surveys of work performed;
2. Services performed to date as a percentage of total services to be performed;
3. Costs incurred to date in relation to total estimated costs.
Example 2: Interest Recognition
Gomo Ltd manufactures and sells vehicle engines. The following transaction
occurred during the period:
• 1 July 2007: Mr Mechanic purchased 3 engines to be paid for over a period of
two years. The payment plan is 2 installments of R225 000 each, payable in
arrears, calculated using an interest rate of 7.32125% annually.
• The cash price of the three engines is R450 000.
• Sales agreement involved either 60 days terms or extended credit terms.
Required: Provide the journal entries required to record the transaction for the
period ending 31 August 2007 and calculate the revenue amount to be recognized
for the period ending on 31 August 2007.

Example 3: Dividend Recognition 1

A company declared its interim dividend on ordinary shares on 31 December 2008.
These interim dividends will be payable 2 months later to shareholders registered on
31 December 2008. The year-end of the reporting entity (entity receiving the
dividends) is 31 December.
Required: Briefly discuss how the revenue should be recognised.

Example 4: Dividend Recognition 2

A company declared its final dividend on ordinary shares on 31 December 2008.
These final dividends will be payable 2 months later to shareholders registered on 31
December 2008. The year-end of the reporting entity (entity receiving the dividends)
is 31 December.
Required: Briefly discuss how the revenue should be recognised.