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ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue

On 1 January 20X1 Rina Co delivers goods to a customer that will pay $1,210,000 on 31 December 20X2. Control passes on delivery. The discount rate that would apply in a separate financing transaction between the parties is 10% a year. What revenue does Rina recognise on 1 January 20X1, and what finance income arises in the year ended 31 December 20X1?

Revenue is $1,000,000, the present value of $1,210,000 discounted for two years at 10%. Finance income of $100,000 is recognised in the first year as the discount unwinds at 10% on $1,000,000. The remaining $110,000 is recognised in the second year.

  1. ARevenue $1,000,000; finance income $100,000Correct
  2. BRevenue $1,210,000; finance income nil
  3. CRevenue $1,100,000; finance income $110,000
  4. DRevenue $1,000,000; finance income $121,000

Explanation

Significant financing component exists with a two-year delay. Present value = 1,210,000 / 1.1^2 = 1,000,000, recognised as revenue at delivery. Unwinding in year 1 is 10% x 1,000,000 = 100,000 as finance income. Option with 121,000 uses the year-two amount or total interest incorrectly.

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