Roll Number: ____________
National University of Computing & Emerging Sciences
FAST School of Management
Department of Accounting & Finance
Subject: Corporate Accounting – II Class: BSAF – 04
Assignment 1: IFRS 15 Revenue
1. On 1 November 20X7, Shahid receives an order from a customer for 30 computers as
well as 12 months of technical support for computers. Shahid delivers the computers
(and transfers its legal title) to the customer on the same day. The customer paid Rs.
25,000 upfront. The computer sells for Rs. 20,000 and the annual technical support
sells for Rs. 5,000.
Required: Apply the five-step model on above arrangement for the year ended 31
December 20X7.
2. A shopkeeper agreed to deliver 10 computers to Waqas Enterprises within 3 months.
As per the agreement shopkeeper can cancel the contract any time before delivering
the computers. In case of cancellation, shopkeeper is not required to pay any penalty
to Waqas Enterprises.
Required: Does the contract exist?
3. Mr. Owais agreed on March 1, 20X7 to sell 5 cutting machines to Axiom Enterprises.
Due to some deficiency in drafting the agreement each party’s rights cannot be
identified. On March 31, 20X7 Mr. Owais delivered the goods and these were accepted
by Axiom Enterprises. After 10 days of delivery i.e., April 10, 20X7 Axiom Enterprises
made the full payment and the payment is non-refundable.
Required: When should Owais record the revenue?
4. Adil Limited enters into 2 separate agreements with customer X. Agreement 1: Deliver
10,000 bricks for Rs. 100,000 Agreement 2: Build a boundary wall for Rs. 20,000
Required: Should the above agreements be combined?
5. Pico Ltd. (PL) sells 10 washing machines for Rs. 20,000 each to a Retailer Co. (RC). PL
also provides the following free of cost:
• Free service and maintenance for 3 years
• 10 kg of washing powder every month for the next 18 months
• A discount voucher for a 50% discount if next purchase is made in the next 6 months
Required: Identify separate performance obligations.
6. An entity, a software developer, enters into a contract with a customer to transfer a
software licence, perform an installation service and provide unspecified software
updates and technical support (online and telephone) for a two-year period.
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The contract specifies that, as part of the installation service, the software is to be
substantially customised to add significant new functionality to enable the software
to interface with other customised software applications used by the customer.
The entity sells the licence, installation service and technical support separately. The
customised installation service can be provided by other entities. The software
remains functional without the updates and the technical support.
Required: Identify performance obligations.
7. Consider the following two contracts:
(i) ECL has entered a contract with Kashif Builders for construction of a residential
project, including supply of construction material, architectural services,
engineering and site clearance. ECL and its competitors provide such services
separately also.
(ii) eSolutions Limited, a software developer, entered a two-year contract with a
customer to provide software license including future software updates and
post implementation support services. The software license would remain
functional even if the updates and post implementation support services are
discontinued.
Required: In view of the requirements of IFRS 15 ‘Revenue from Contracts with
Customers’, discuss whether goods and services provided in each of the above
contracts represent a single performance obligation.
8. Tayyab Co. enters into a contract to build an oil rig for Rs. 100 million. If the oil rig is
not completed on time, there will be a Rs. 20 million penalty. Tayyab Co. has built
similar oil rigs before and there is 90% chance that the oil rig will be completed on
time.
Required: Briefly discuss how Tayyab Co. should measure transaction price.
9. An entity enters into a contract with a customer to build an asset for Rs.1 million. In
addition, the terms of the contract include a penalty of Rs. 100,000 if the construction
is not completed within three months of a date specified in the contract.
Required: Using the expected value approach, determine the transaction price if there
is 40% chance of completing the contract on time and 60% chance that there would
be delay of 3 to 5 days.
10. An entity enters into 100 contracts on 31 December 20X7 with customers. Each
contract includes the sale of one product for Rs.100 (100 total products × Rs. 100 = Rs.
10,000 total consideration).
Cash is received when control of a product transfers. The entity’s customary business
practice is to allow a customer to return any unused product within 30 days and
receive a full refund. The entity’s cost of each product is Rs. 60.
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Roll Number: ____________
Using the expected value method, the entity estimates that 97 products will not be
returned. The entity estimates that the costs of recovering the products will be
immaterial and expects that the returned products can be resold at a profit.
Required: Journal entries (entity uses perpetual inventory system) if:
a) 3 products are returned on January 30, 20X8
b) 2 products are returned on January 30, 20X8
c) 4 products are returned on January 30,20X8.
11. An entity enters into a contract with a customer on 1 January 20X8 to sell Product A
for Rs. 100 per unit. If the customer purchases more than 1,000 units of Product A in
a calendar year, the contract specifies that the price per unit is retrospectively reduced
to Rs. 90 per unit.
For the first quarter ended 31 March 20X8, the entity sells 75 units of Product A to the
customer. The entity estimates that the customer’s purchases will not exceed the
1,000-unit threshold required for the volume discount in the calendar year.
In May 20X8, the entity’s customer purchases an additional 500 units of Product A
from the entity. In the light of the new fact, the entity estimates that the customer’s
purchases will exceed the 1,000-unit threshold. All transactions are on cash basis and
refund or adjustment shall be made only when the customer purchases exceed 1,000
units.
Required: Prepare the journal entries from 1 January 20X8 to 30 June 20X8 relating to
above.
12. Maria Limited (ML) sold goods of Rs. 10,000 to Zahra Traders (ZT) on 8th August 20Y1
to be paid on 31st August 20Y1. However, if ZT pays within 10 days, it will be entitled
to 4% cash discount and will have to pay only Rs. 9,600.
Required: How the above transactions along with following independent scenarios
will be treated in the books of ML on 8th August and on the date of payment:
(a) ML expected that ZT will not pay within 10 days and ZT actually paid on 31st
August.
(b) ML expected that ZT will not pay within 10 days, but ZT actually paid on 17th
August.
(c) ML expected that ZT will pay within 10 days and ZT actually paid on 17th August.
(d) ML expected that ZT will pay within 10 days, but ZT actually paid on 31st August.
13. An entity sells a product to a customer for Rs. 121 on 3 October 20X7 that is payable
24 months after lapse of return period of 90 days. The product is new, and the entity
has no relevant historical evidence of product returns or other available market
evidence. Therefore, the entity concludes that risk and rewards (and control) will
transfer to customer on expiry of return period.
The cash selling price of the product is Rs. 100 and the cost of inventory is Rs. 80. The
entity has year-end of December 31. The contract includes an implicit interest of 10%.
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Roll Number: ____________
Required: Comment on when to recognize revenue and prepare the journal entries
for the contract.
14. An entity enters into a contract with a customer to sell an asset. Control of the asset
will transfer to the customer in two years (i.e., the performance obligation will be
satisfied at a point in time). The contract includes two alternative payment options:
payment of Rs. 5,000 in two years when the customer obtains control of the asset or
payment of Rs. 4,000 when the contract is signed. The customer elects to pay Rs. 4,000
when the contract is signed on 1 January 20X8.
AT A GLANCE SPOTLIGHT STICKY NOTES The entity concludes that the contract
contains a significant financing component because of the length of time between
when the customer pays for the asset and when the entity transfers the asset to the
customer, as well as the prevailing interest rates in the market.
The interest rate implicit in the transaction is 11.8%, which is the interest rate
necessary to make the two alternative payment options economically equivalent.
However, the entity determines that, the rate that should be used in adjusting the
promised consideration is 6%, which is the entity’s incremental borrowing rate.
Required: Discuss when the revenue will be recognized and prepare the journal
entries for the above contract.
15. Car World sells new cars on deferred payment basis whereby 40% deposit is received
on sale and the balance payment is received at the end of two years. The appropriate
discount rate is 10%.
On 1 July 20X4 a car was sold to a customer for Rs. 2,000,000
Required: Prepare necessary journal entries to record the above transaction in the
books of Car World for the years ended 30 June 20X5 and 20X6.
16. Jupiter Limited (JL) entered into a two years contract on 1 January 20X7, with a
customer for the maintenance of computer network. JL has offered the following
payment options:
Option 1: Immediate payment of Rs. 200,000.
Option 2: Payment of Rs. 110,000 at the end of each year.
The applicable discount rate is 6.596%.
Required: Prepare journal entries to be recorded in the books of JL under each option
over the period of contract.
17. An entity enters into a contract with a customer to provide a monthly service for one
year. The contract is signed on 1 January 20Y1 and work begins immediately.
The entity concludes that the service is a single performance obligation performed
over time and also measured on time basis.
In exchange for the service, the customer promises 100 shares of its ordinary shares
per month of service (a total of 1,200 shares for the contract). The terms in the
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Roll Number: ____________
contract require that the shares must be paid upon the successful completion of each
month of service.
On 31st January 20Y1, when entity received 100 shares as agreed, the fair value of one
share in customer’s company is Rs. 25.
Required: Journal entry on 31st January 20Y1.
18. An entity enters into a one-year contract to sell goods to a customer that is a large
global chain of retail stores. The customer commits to buy at least Rs. 15 million of
products during the year. The contract also requires the entity to make a non-
refundable payment of Rs. 1.5 million to the customer at the inception of the contract
(1 Jan 20X8) for the changes it needs to make to its shelving to accommodate the
entity’s products.
By 30th June 20X8, Rs. 6 million goods were invoiced.
By 31st December 20X8, remaining Rs. 9 million goods were invoiced.
Required: Journal entries.
19. An entity enters into a contract with a customer to sell Products A, B and C in exchange
for Rs. 100. The entity will satisfy the performance obligations for each of the products
at different points in time. The entity regularly sells Product A separately and
therefore the stand-alone selling price is directly observable.
To estimate the stand-alone selling prices, the entity uses the adjusted market
assessment approach for Product B and the expected cost plus a margin approach for
Product C.
Product Stand-alone selling Method
price*
Product A Rs. 50 Directly observable
Product B Rs. 25 Adjusted market
assessment approach
Product C Rs. 75 Expected cost (Rs. 60) plus
a margin (Rs. 15) approach
Total Rs. 150
Required: Allocate the transaction price of Rs. 100 to Product A, B and C.
20. An entity regularly sells Products A, B and C individually, thereby establishing the
following stand-alone selling prices:
Product Stand-alone selling price*
Product A Rs. 40
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Product B Rs. 55
Product C Rs. 45
In addition, the entity regularly sells Products B and C together for Rs. 60.
The entity enters into a contract with a customer to sell Products A, B and C in
exchange for Rs. 100.
Required: Comment on the basis and Allocate the transaction price of Rs. 100 to
Product A, B and C.
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