CLASS EXAMPLES 3

Determining the transaction price

 Example 7 – Transaction price,
collectability and the loss allowance
We sign a contract with a customer on 1 January 2001. The contract price is R100 000.
Collectability is probable but, based on assessment of the credit risk of similar customers, we
expect to incure a loss of R10 000(We expect to receive 90%). We satisfy our performance
obligation on 20 June 2001. At 31 December 2001, reporting date, the expected credit loss is re-
assessed at R15 000.

Required: Show journals

a) For 2001 to account for information provided above
b) For 2002 if the customer pays, on 15 January 2002, an amount of R85 000, in full and final
settlement.
c) For 2002 if the customer pays, on 15 January 2002, an amount of R100 000, in full and final
settlement
d) For 2002 if the customer pays, on 15 January 2002, an amount of R80 000, in full and final
settlement
 Example 8 – Transaction price:
Collectibility vs implied price concession
An entity signs a contract on 1 January 2001 with a new customer in a new
region. The contract price is R100 000, when the contract was signed, the
entity was aware the customer had a significant cash flow problems.
However, the entity believed that the customer’s financial situation would
improve and that it would probably be able to pay R60 000 when the amount
falls due for payment. The entity also believed that the transacting with this
new customer would possibly result in further potential customers in this
region. The entity satidfied its performance obligation on 20 January 2001

Required: Show journals

a) Discuss how this information should be considered.
 Example 9 – Variable consideration
(discounts)
AnaPal Ltd sold inventory to a customer, on credit for R100 000, less a 10%
trade discount.
A further discount of 5% is offered to customers who pay within 30 days.
Based on experience, AnaPal expects most of its customers to pay within 30
days. Based on experience AnaPal expects most of its customers to pay
within this time frame.
This customer obtained control of the inventory on 1 February 2002 and paid
on 20 February 2002

Required: Show journals

a) Provide the necessary journals to account for the above information
 Example 12 – Estimating variable
consideration (Constraining the estimate)
An entity has entered into a contract, which has a fixed consideration of
R400 000 and a variable consideration estimated at R300 000.

The amount of variable consideration that would be highly probable of not

resulting in a significant reversal of the cumulative revenue recognised to
the date that the uncertainty is resolved, is R250 000.
Required: Show journals
a) Explain the calculation of the final estimated transaction price
 Example 15 – Receipts exceeds constrained
estimate of variable consideration
An entity signed a contract with a customer in 2001, in which the promised consideration is
represented entirely by variable consideration, estimated at R90 000 and which was
constrained to R80 000.

By end of 2001, the entity had completed 80% of its performance obligation. The customer
made its first payment a few days before reporting date, in an amount of R72 000 cash.

In 2002, the uncertainty resolves and R90 000 is due in total by the customer. The entity
has now completed 95% of the performance obligation. There were no further receipts
from the customer.
Required: Show journals
a) Prepare the journal entries to reflect the information provided.