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Dear Mr.Mike,
As per ur workings of question 2 from IFRS 15 – practice questions
“Revenue recognised 13.2
Costs recognised 11.55
Profit recognised 1.65Costs to date 10
Profit recognised 1.65
Amounts invoiced (13)
Due from customer (1.35)Amounts invoiced 13
Amounts received (5)
Due from customer 8Net amount due from customer 6.65”
I can see figures of 2 years were combined together but for each year i did like this
SOFP @ 31/12/15
Cost to date 10,000,000
Add profit to date (55% x 24m – 30% x 24m) – (55% x 21m – 30% x 18m) = (150,000)
Less progress payment (5m+8m) = (13,000,000)
Amount due to customers = (3,150,000) ???????Why, in working W2, are you considering the (loss) recognised only in the second year?
Workings W2 and W3 are cumulative workings – as it clearly explains in the video lecture on this topicHave you watched the video?
Yes Mike, i see it called ” profit TO DATE” means accumulated figure, but i don’t understand ur last 4 sentences
Amount invoiced 13
Amount received (5)
Due from customer 8” Torrid PLC INVOICED the customer $5m and this was received in 02/15″
Can u explain for me clearly about this sentence???1st invoice
Dr amount due from customer 5
Cr ?????When received the money
Dr bank 5
Cr amount due from customer 5And as at 31/12/15
we have calculated amount due to customer of 1.352nd invoice
Dr amount due from customer 8
Cr ?????And it was paid in 03/16 that means at 31/12/15 we still have the balance on “amount due from customer” which is 8
And it was offset with balance on “amount due to customer” of 1.35 then we have 6.65??? Correct???Can u tell me what is the corresponding account (the “????”) when we account for each invoice???
Ok i understand!!!!
It goes like this
Y/e 2014
1/Cost incurred
Dr amt due from/to customer 5
Cr bank 5
2/Revenue/ cost & profit
Dr contract cost 5.4
Dr amt due from/to customer 1.8
Cr contract revenue 7.2
3/progress payment
Dr bank 5
Cr amt due from/to customer 53 of them is combined then we have balance on debit side of 2.8 as known as amt due from customer
Y/e2015 with debit side b/d of 2.8
1/Cost incurred
Dr amt due from/to customer 4
Cr bank 4
2/Revenue/ cost & profit
Dr contract cost 6.15
Cr amt due from/to customer 1.5
Cr contract revenue 6not yet received the money until 03/16
Therefore it gives us c/f of 6.65 aka amt due from customer
Thank u Mike!!!
The answer to:
“Dr amount due from customer 8
Cr ?????”is
“Credit Contract Account 8”
The “Amounts due to / from Customers” should not be netted off against each other. If it’s an amount due to a customer that should be shown in liabilities
Dear Mike,
Can u figure out for me question 3 and also 4??? I’m stucking on it
Thank you
If it helps, both question 3 and question 4 are scheduled to be amended
Question 3 is a poor question and has a wrong answer shown
The correct answer is 2,220
Question 4 needs to have the year changed to 31 October, 2014
Does that make it better?
Yep, thank u Mike
I want to ask u about inter-company sales
If P sells goods to S all all goods are still held in stock
Did the inter-company sales affect on profit of S?As my thinking is:
When P sells to S, the sales is recognised into revenue of P (overstated) and the unrealised profit will increase RE of P too (overstated)
Therefore we need to eliminate these effects
Otherwise, its grown in Inventory & COS of S which means when the sales had been took place, S accounted by increasing COS -> profit would be reduced
Then when we do consolidation, we eliminate it by
Cr COS
It results in increase profit of STwo entries to make, and I prefer to treat them as independent – two separate thought processes
Clearly an entity cannot sell to itself and the process of consolidation is to treat the aggregation of all entities within the group as a single entity
Therefore, eliminate all intra-group trading on a dollar for dollar basis. If I sell $3,264 worth of goods to you, how much did you buy from me?
$3,264!
So reduce COMBINED revenue, reduce COMBINED cost of sales by the aggregate of ALL intra-group trading – this adjustment is tidying up the consolidation. It ISN’T an entry that affects either entity, so NO ADJUSTMENT is made to the individual entity figures
Having eliminated the intra-group sales and purchases, now turn your attention to the problem of unrealised profits. Is there in either entity inventory any goods bought from within the group? If so, there’s likely to be a profit element within that inventory valuation.
Calculate the unrealised profit (either mark-up or margin), determine which entity made the sale and therefore it is that same entity that has recognised the profit, and ADD that unrealised profit to that entity’s cost of sales. This is NOT a tidying up exercise and the adjustment DOES affect the selling entity’s retained earnings
To complete the double entry, DEDUCT the unrealised profit from the COMBINED inventory
These two steps need to be done by you as automatic exercises – these are bread-and-butter marks (probably 2 and maybe 3 marks) and can be earned in less than 1 minute of your time in the exam room
OK?
Understood Mike !!!!
The double entry to eliminate sales and cos is within a group entity, because it cannot sell to itself
But the unrealised profit is still recognised by the seller and it was stored in inventory of the group, then eliminate RE of seller and invetory of group
Thank u very much
Hello everyone here, I have question about the warranty contract.
I company makes a contracrt to sell an item and gives a five year warranty to the item, but it is not possible to identify the warranty cost alone, in this situation what standart we should use?
Thank you in advance!
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