Financial Accounting & Reporting (FIN)

Revenue and tax effect

accounting
Virtual Classroom 1

Slide 1
 FIN Live Q&A Session 1

Outline and objectives

This live session today will cover:
• Revenue (unit 3)
• Tax effect accounting (unit 4) The
Thesession
session
assumes
assumesyou you
have
haveworked
worked
We will approach this through a variety of means: through
throughthe
the
• What if questions based on building on the pre recorded scenario preparation
preparation
video
video
• Free question & answers on some topic areas
• Further small scenarios

Slide 2
 FIN Live Q&A Session 1

Steps 1 & 2: contract & performance obligations

STEP 2: Identify the performance obligations: Poll 1

1. Supply & install hardware

Why is this combined into one performance obligation?

Any further questions on identifying a contract

& performance obligations?

Slide 3
 FIN Live Q&A Session 1

Analyse the contract : step 3 & 4 determine

the transaction price & allocate
Polls 2, 3 & 4
STEP 3: Determining the transaction price

Imagine that, to complicate matters, in the €4,950,000 contract price, Ballot

introduces a €200,000 rebate on hardware to high volume customers.

Ballot defines high volume customers as those customers spending over

€10,000,000

Now 20X9. let’s imagine that our payment terms change, and
to attract more customers the 30% instalment due on
28 January X7 is now to be paid on
30 November X9

Slide 4
 FIN Live Q&A Session 1

Step 5: Recognise revenue when the

performance obligation is satisfied
Poll 5

It’s important to
distinguish
Revenue recognised is not between over time
the same as cash received and point in time

Slide 5
 FIN Live Q&A Session 1

IFRS 15 example
Crave-Fitness operates a chain of gyms.
Members can join the gym for a one-off, non-refundable fee of $180.
A 12 month membership costs $1,200 for use of all the gym’s
facilities and classes.
Jasper joins the gym as a new member on 1 May 20X5 and pays
$1,380 which includes a 12 month membership. In return he receives
a membership card that he swipes to enter the gym.

Let’s determine the timing and amount of revenue that

Crave-Fitness can recognise for the years ending 30 June 20X5
and 20X6 under IFRS 15 by applying the 5 Steps.

Slide 6
 FIN Live Q&A Session 1

Gym membership – applying the 5 step model

Step Application
1. Identify the contract Contract with Jasper for gym membership

Provision of gym services

2. Identify the performance
Initial sign-up is not a performance obligation (the
obligations receipt of the card is not a distinct good or service)

$1,380 = $180 joining fee + $1,200 for

3. Determine the transaction price 12 months membership

4. Allocate the transaction price to

Performance obligations are satisfied over the
12 months, therefore, $1,380 ÷ 12 months
performance obligations

$230 by 30 June 20X5 ($1,380 ÷ 12 mths x 2 months)

5. Recognition: amount and when $1,150 by 30 April 20X6 ($1,380 ÷ 12 mths x 10 months)

Slide 7
FIN Live Q&A Session 1

Slide 8
Financial Accounting & Reporting (FIN) Poll 6

Tax effect accounting

Virtual Classroom 1

Slide 9
 FIN Live Q&A Session 1

Required – Task
a) Prepare the tax effect journal entries for Ballot for the years
ending 31 December 20X6 and 20X7, in accordance with IAS
12 Income Taxes (IAS 12), in respect of the temporary
difference arising on the NITS contract.

Slide 10
 FIN Live Q&A Session 1

Revenue received in advance liability

Revenue Year ended 31.12.X6 Year ended 31.12.X7
component Cash Revenue Cash Revenue
€ € € €
Supply hardware 3,999,600 - €
2,475,000 3,999,600
2 year software license 71,280 -
28 Jan X7 29,700
2 year software support 879,120 30 Nov X6 -
1,485,000 366,300
Total 4,950,000 990,000 - 3,960,000 4,395,600

At 31.12.X7:
€4,395,600 has been recognised as revenue,
€4,950,000 cash has been received,
so €554,400 is shown as a liability for revenue
received in advance
Slide 11
 FIN Live Q&A Session 1

Calculate temporary difference on the Ballot’s

contract with NITS – 31.12.X7
Revenue received in advance = liability
CSG
CSGpage
page4-20
4-20
Liabilities
Carrying amount  Tax base  Deductible temporary difference (DTD) OR
ORthe
thetax
taxbase
base
would
wouldbebe€0
€0ininaa
Carrying amount  Tax base  Taxable temporary difference (TTD)
notional
notionaltax
tax
Tax base of a liability – use the ‘exception’
balance
balancesheet
sheetasas
rule for revenue received in advance the
theamount
amountwaswas
taxed
taxedwhen
when
Carrying Revenue not taxable in future received
received
Tax base  
amount periods CSG
CSGpage
page
4-18
4-18

€0  €554,400  €554,400

Slide 12
 FIN Live Q&A Session 1

Calculate deferred tax asset – 31.12.X7

DTD X Tax rate  Deferred tax asset Poll 7

€554,400 X 33%  €182,952

Deferred tax asset  Opening balance  Movement

€182,952  €326,700  (€143,748)

Date Account description Dr € Cr €

31.12.X7 Income tax expense 143,748
Deferred tax asset 143,748
To record the movement in the deferred tax balance

Slide 13
 FIN Live Q&A Session 1

Further tax effect issues

Depreciating asset
€40,000 gain on sale of an €500,000 bought on first day of
the year – cost
asset recognised in profit accounting profit €100,000
that will never be
assessable
for the year ended Accounting
for tax 31.12.X9 depreciation 4 years
straight line Tax
depreciation 5 years
straight line

Tax
Taxrate
rate
33%
33%

Slide 14
 FIN Live Q&A Session 1

Gain on sale of asset

Current tax liability calc €
Polls 8 & 9

Profit 500,000

- Accg gain on sale (40,000)

Taxable income 460,000 Curren

t
liab 31 tax
Tax @ 33% 151,800 .12.X9
Dr ITE
€151,
800
Cr CTL
€151,
80
CTL fo 0
r Y/ E
X9

Slide 15
 FIN Live Q&A Session 1

Depreciation
Current tax liability calc €
Poll 10

Profit 500,000

- Accg gain on sale (40,000)

+ Accg depn 25,000 Curren

t
liab 31 tax
.12.X9
- Tax depn (20,000)
Dr ITE
Taxable income 465,000 €153,4
50
Tax @ 33% 153,450 Cr CTL
€153,4
5
CTL fo 0
r Y/ E
X9

Slide 16
 FIN Live Q&A Session 1

Calculate temporary difference – 31.12.X9

Depreciable asset Polls 11 & 12

Assets
Carrying amount  Tax base  Taxable temporary difference (TTD)
Carrying amount  Tax base  Deductible temporary difference (DTD)

Tax base of an  Carrying  Future taxable + Future deductible

asset amount amounts amounts
€80,000  €75,000  €75,000 + €80,000

Asset
OR TB
ORthethetaxtaxbase
basewould
wouldbe
be€80,000
€80,000 CA
ininaanotional €80,000
notionaltaxtaxbalance
balancesheet
sheetas
as €75,000
that
thatisisits
itstax
taxwritten
writtendown
downvalue
value

Slide 17
 FIN Live Q&A Session 1

Deferred tax asset at 31.12.X9

Defe
r
asse red tax
t 31
.12.
X9
Dr D
TA €
1,65
Cr I 0
TE
Def €
tax 1,650
m/ m
ent
for
X9

DTD  Tax rate  Deferred tax asset

€5,000  33%  €1,650

Deferred tax asset  Opening balance  Movement

€1,650  €0  €1,650

Slide 18
FIN Live Q&A Session 1

Slide 19
Thank you

Slide 20