Exercise 1

An entity enters into a contract with a customer to build a customised asset.

The promise to transfer the asset is a performance obligation that is satisfied
over time. The promised consideration is $2.5 million, but that amount will be
reduced or increased depending on the timing of completion of the asset.
Specifically, for each day after 31 March 20X7 that the asset is incomplete, the
promised consideration is reduced by $10,000. For each day before 31 March
20X7 that the asset is complete, the promised consideration increases by
$10,000.
In addition, upon completion of the asset, a third party will inspect the asset
and assign a rating based on metrics that are defined in the contract. If the
asset receives a specified rating, the entity will be entitled to an incentive
bonus of $150,000.
Required:
(a) Calculate the transaction price if entity estimates 60% chances that
there will be delay of two days (40% chance that it will build on due date) and
70% chances that specified rating shall be received.
(b) Calculate the transaction price if entity estimates 35% chances to build 5
days before due date, 40% chances to build on due date and 25% chances that
delay of two days will be made. There is 45% chance that specified rating shall
be received.
The entity decides to use the expected value method to estimate the variable
consideration associated with the daily penalty or incentive (ie $2.5 million,
plus or minus $10,000 per day). This is because it is the method that the entity
expects to better predict the amount of consideration to which it will be
entitled.
The entity decides to use the most likely amount to estimate the variable
consideration associated with the incentive bonus. This is because there are
only two possible outcomes ($150,000 or $0) and it is the method that the
entity expects to better predict the amount of consideration to which it will be
entitled.
a. 2,500,000 x 40% + (2,500,000 - 20,000) x 60% + 150,000 = 2,638,000
b. 2,500,000 x 40% + (2,500,000 + 50,000) x 35% + (2,500,000 - 20,000) x 25% +
0 = 2,512,500
Exercise 2
Company A sells a cable TV system to customer B under the following terms on
1 October 20X2:
Customer has to pay a monthly fee of $80 for 12 months and get a free cable
TV set top box and access to all the TV channels at the contract signing date
Company A sells the set top box by itself for $250 and charges monthly access
to the TV service without the set top box for $65 a month
What amount of revenue should company recognise in the year ended 31
December 20X2?
Solution
Step 1: Identify the contract
A contract is in the place between A and B for a 12-month period
Step 2: Identify the performance obligation
A has 2 separate performance obligations:
Deliver a set top box
Deliver cable TV access for 12 months
Step 3: Determine the transaction price
12 x $80 = $960
Step 4: Allocate transaction price to performance obligations

Stand-alone %Total Revenue

selling price
Box $250 24.3% $233

Monthly access $780 ($65 x 12) 75.7% $727

to TV
Total $1,030 100% $960
Step 5: Recognise revenue
Dr Cash $240 (80 x 3)
Dr Contract Asset (Receivable) $174
Cr Revenue $414 ($233 + $181)

Exercise 3:
Pluto Limited (PL) sells industrial chemicals at the following standalone prices:
Products $ (per carton)
C-1 100,000
C-2 90,000
C-3 110,000
PL regularly sells a carton each of C-2 and C-3 together for $ 170,000.
Required:
Calculate the selling price to be allocated to each product, in case PL offers to
sell one carton of each product for a total price of $260,000.
Solution
Performance
Obligations Stand-alone selling price Proportion Revenue

C2 90000 0.45 76500

C3 110000 0.55 93500

Total 200000 1 170000

Performance Stand-alone selling

Obligations price Proportion Revenue
C1 100000 0.37 96296
C2 76500 0.28 73667
C3 93500 0.35 90037
Total 270000 1.00 260000
Exercise 4:
The following details apply a contract where performance obligations are
satisfied over time at 31 December 20X5
Total contract revenue 120,000
Costs to date 48,000
Estimated costs to completion 48,000
Amounts invoiced 50,400
The contract is agreed to be 45% complete at 31 December 20X5 as a contract
asset?
Solution
Contract Asset / Liability = Costs incurred to date + Recognized profits –
Receivable (amounts invoiced)
Estimated revenue = 120,000 x 45% = 54,000
COGS = (48,000 + 48,000 ) x 45% = 43,200
Profits = 54,000 – 43,200 = 10,800
Contract asset = 48,000 + 10,800 – 50,400 = 8,400
Exercise 5:
ABC entered into a contract with Thomas to provide a custom-made bed
frame. The contract price is $3,000 and it includes delivery and installation.
ABC does not provide installation services separately
The standalone market prices:
- Installation is $200
- Delivery is $200
- Similar custom-made bed frame is $2,800
Solution
Step 1:
We have an agreement between two parties so that is satisfied
Step 2:
There are two performance obligations in this contract
1. The delivery of the bed frame
2. The bed frame and installation
Step 4:
Performance Stand-alone Percentage Allocation of TP
Obligation selling price
Cos $200 200/3,200 = $3,000 x 6.25% =
6.25% $187.5
Bed-frame and $2,800 + 200 = 3,000 / 3,200 = $3,000 x 93.75% =
installation $3,000 93.75% $2,812.5
Total $3,200 100% $3,000

Exercise 6:
The F/S for year ended 30 September 20x4, of Chamberlain shows a 2 years
construction contract with a cost to date $35m, progress billing received $30m
commenced on 1 October 2003. Total agreed contract price is $125m,
expected contract cost $75m. The percentage of completion is determined by
the contract costs to date over the total contract costs. Of the $35m cost to
date, $5m related to materials delivered to site but has not been used
Determine the amount of contract asset/liability ?
Solution
% of completion based on costs:
Costs to date used in contract ($35 - $5 unused) 30,000
Total contract costs 75,000
% of completion 40%

Revenue (contract revenue $125,000 * 40% completed) 50,000

 Contract costs 30,000
Profits 20,000

Costs to date (including the unused part) 35,000

Plus: profit recognised 20,000
Less: progress billing 30,000
Contract asset 25,000

MCQ
1. Which of the following is false?
a. The objective of IFRS 15 is to establish the principles that an entity shall
apply to report useful information to users of financial statements about the
nature, amount, timing and uncertainty of revenue and cash flows arising from
a contract with a customer.
b. The core principle of IFRS 15 is that an entity shall recognize revenue to
depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.
c. When accounting for a portfolio contracts using IFRS 15, an entity shall not
use estimates and assumptions that reflect the size and composition of the
portfolio.
d. An entity shall not apply IFRS 15 to contracts involving non-monetary
exchanges between entities in the same line of business to facilitate sales to
customers or potential customers.
2. It is a party that has contracted with an entity to obtain goods or services
that are an output of the entity’s ordinary activities in exchange for
consideration.
a. Seller
b. Potential buyer
c. Customer
d. Contractee
3. Which of the following is not a criterion for a contract to be accounted for
using IFRS 15?
a. The entity can identify each party’s rights regarding the goods or services to
be transferred.
b. The entity can identify the payment terms for the goods or services to be
transferred.
c. The parties to the contract must be approved the contract in writing and are
committed to perform their respective obligations.
d. The contract has commercial substance
4. Which of the following is most related to trade discounts and rebates?
a. Receivable discounting
b. Price increase
c. Price concession
d. Sale and buy-back
5. Which of the following is incorrect regarding contract modification?
a. A contract modification is a change in the scope of a contract that is
approved by the parties to the contract without changing its price.
b. A contract modification may be described as a change order, a variation or
an amendment.
c. A contract modification exists when the parties to a contract approve a
modification that either creates new or changes existing enforceable rights and
obligations of the parties to the contract.
d. If the parties to the contract have not approved a contract modification, an
entity shall continue to apply IFRS 15 to the existing contract until the contract
modification is approved
6. The price at which an entity would sell a promised good or service
separately to a customer.
a. Transaction price
b. Stand-alone price
c. Contract price
d. Performance price
7. Which of the following is not a criterion if an entity is to account for a
contract with a customer in accordance with IFRS 15?
a. The parties to the contract have approved the contract (in writing, orally or
in accordance with other customary business practices).
b. The entity can identify the payment terms for the goods or services to be
transferred.
c. The contract has commercial substance.
d. it is virtually certain that the entity will collect the consideration to which it
will be entitled in exchange for the goods or services that will be transferred to
the customer.
8. It can be described as a change order, a variation or an amendment.
a. Contract modification
b. Contract asset
c. Change in accounting estimate
d. Combination of contract
9.
Statement I: An entity shall recognize as an asset the incremental costs of
obtaining a contract with a customer if the entity expects to recover those
costs.
Statement II: The incremental costs of obtaining a contract are those costs that
an entity incurs to obtain a contract with a customer that it would not have
incurred if the contract had not been obtained.
a. True; True
b. True; False
c. False; True
d. False; False
10. Enforceability of the rights and obligations in a contract with a customer
should be governed by the
a. IFRS 15
b. Law governing the contract
c. Conceptual framework
d. Entity's management decision