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

Orion Co has a contract with a customer, and the customer has paid the full $90,000 in advance on 1 January, before Orion has transferred any goods. Orion's right to the cash is unconditional and it has not yet performed. How should Orion present the position at 31 January, assuming no performance has occurred?

Orion should present a contract liability of $90,000 because it has received consideration before transferring any goods or services. Revenue is recognised only when the performance obligation is satisfied, so no revenue or contract asset arises at 31 January.

  1. ARevenue of $90,000 and a trade receivable
  2. BA contract liability of $90,000Correct
  3. CA contract asset of $90,000
  4. DA deferred expense of $90,000

Explanation

Where a customer pays before the entity performs, the entity has an obligation to transfer goods, shown as a contract liability under IFRS 15. No revenue arises until performance obligations are satisfied. A contract asset would arise only if the entity had performed before payment and its right was conditional on something other than time.

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