Module 3 - Warm up

On 31 March 20X7, DT received an order from a new customer, XX, for products with a sales value

of $900 000. XX enclosed a deposit with the order of $90 000.

On 31 March 20X7, DT had not completed credit referencing of XX and had not despatched any

goods. DT is considering the following possible entries for this transaction in its financial

statements for the year ended 31 March 20X7.

I. Recognise a liability for $90 000

II. Include $90 000 in revenue for the year

III. Include $900 000 in revenue for the year

IV. Recognise a trade receivable for $810 000

V. Do not include anything in revenue for the year

According to IFRS 15 Revenue from Contracts with Customers, how should DT record this

transaction in its financial statements for the year ended 31 March 20X7?

• A I and II only

• B I and V only

• C III and IV only

• D IV and V only

London Co. sells air conditioning systems, providing one year's free servicing with every system

sold. The servicing could be purchased separately for $500. How should London Co. account for

the $4000 sales price of each system?

• $4000 should be recognised as revenue spread over the first year after sale.

• $4000 should be recognised as revenue when each system is delivered to the customer.

• $3560 should be recognised as revenue when each system is delivered to the customer and

  $440 should be spread over the first year of sale.

• $4000 should be recognised as revenue when each system is delivered to the customer and

  $500 recognised as revenue over the first year after sale.

Which of the following statements regarding revenue recognition are correct?
I. Revenue should ignore any settlement discounts.

II. Tuition fees received by a college are recognised as income on the day the tuition commences.

III. Revenue from the sale of goods on a sale or return basis is recognised when the goods are sold to a third party.

• I only

• III only

• II and III only

• I, II and III

Which of the following transactions is NOT within the scope of IFRS 15 Revenue from Contracts with Customers?

• the sale of a non-controlling equity shareholding owned by a retailer

• the sale of an investment property owned by a manufacturing company

• the sale of an extended warranty by a manufacturer of electrical goods

• an agreement licensing another party to use an anti-virus package created by a software designer

Smeaton Catering Equipment Co (SCE) enters into a contract with a customer on 18 August 20X5 to deliver a commercial grade mixer, mincer and blender. The contract price is $2200, payable in six months. SCE regularly sells the mincer and blender to customers in a bundle, priced at $1200. It also sells each item individually, priced as follows:

Mixer : 1000$
Mincer: 1100$
Blender: $900

SCE's incremental six-month borrowing rate is 5 per cent.

How much of the $2200 transaction price is allocated to the mixer?

• $698

• $733

• $952

• $1000

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets which of the following is the correct treatment for a present obligation arising from past events, the amount of which

cannot be reliably estimated?

• It is disclosed as a contingent asset.

• It is disclosed as a contingent liability.

• No reference is made to the item in the financial statements.

White Co operates an oil rig off Western Australia. As part of its contractual arrangements with the government, it is required to make good the sea bed when the oil rig ceases to operate after 10 years. There is a 75 per cent likelihood that the costs of making good the seabed will be $2.5 million (present value $1.9 million) and a 25 per cent likelihood that they will be $1.8 million (present value 1.35 million). What amount of provision should White Co make in respect of the legal obligation?

• $1 762 500

• $1 900 000

• $2 325 000

• $2 500 000

Mulroon Co, a publishing company, is being sued for $1 000 000 in a libel action in respect of a book published in January 20X0. On 31 October 20X0, the end of the reporting period, the directors believed that the claim had a 20 per cent chance of success. On 30 November 20X0, the date the accounts were approved, the directors believed that the claim had a 30 per cent chance of success.

In the financial statements at 31 October 20X0 what amount should be recognised in respect of this claim?

• $nil

• $200 000

• $300 000

• $1 000 000

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following statements is correct?

• Contingent assets and contingent liabilities are always disclosed in the financial statements.

• Contingent liabilities are accrued and contingent assets are disclosed in the financial statements.

• Contingent liabilities are either accrued or disclosed and contingent assets are disclosed in the financial statements.

• Contingent liabilities are usually disclosed and contingent assets are sometimes disclosed in the financial statements.

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, if the reporting entity is presently obliged to transfer economic benefit to another party, the probability of occurrence is very high but the amount cannot be measured with sufficient reliability - this is a

• provision

• contingent asset.

• contingent liability.

• probable contingent loss.