ACCA Applied Skills · Financial Reporting · Revenue
Dunmore Co enters into a contract with a customer on 1 March. The customer has signed, the goods have been identified and payment terms agreed, and the contract has commercial substance. However, Dunmore assesses that it is not probable it will collect the consideration to which it is entitled. How should Dunmore account for the arrangement at 1 March under IFRS 15?
Dunmore should treat the arrangement as not meeting the IFRS 15 contract criteria. Because collection is not probable, there is no accounting contract, so no revenue is recognised until the criteria are later met or another specified event occurs, such as non-refundable consideration being received.
- ARecognise revenue immediately and recognise an expected credit loss on the receivable
- BRecognise revenue evenly over the contract period
- CConclude the contract criteria are not met, so no revenue is recognised until they are met or an event under the standard occursCorrect
- DRecognise revenue at the lower of cost and selling price
Explanation
One of the IFRS 15 step 1 criteria is that collection of the consideration is probable. If it fails, there is no contract for accounting purposes. Revenue is not recognised and any consideration received is generally a liability until the criteria are met or specified events occur.
Did you get it right without looking?
One question tells you little. A timed set on Revenue shows your real accuracy, how long you take and where you lose marks.
More Revenue questions
- Larch Co sells a printer to a customer and also grants a right to buy ink cartridges in future at a 40% discount, which is a discount the cu…
- Brill Co provides a 4-year managed IT service for $400,000, with services delivered evenly. Before service starts, Brill spends $60,000 on s…
- Oakfield Co agrees to build a specialised processing unit to a customer's design on the customer's land. Under the contract, Oakfield cannot…
- Under IFRS 15, which of the following costs must be expensed as incurred when accounting for a contract with a customer?
- Brightwell Co sells a software licence together with a one-year technical support service for a total of $120,000. The stand-alone selling p…
- Kestrel Co sells a machine to a customer for $90,000 and, in the same contract, agrees to install it. The installation is simple, requires n…