Question revenue contract

Hi Tutor, I know I am asking some exceptional questions but I really need to know it and it is my weak point that I am concentrating to make it strong
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In your explanation, you said that 14400 is instantly recognised as revenue but in the trial balance preparation of P/L it has not been included in the revenue section and only 1600$’s 400(1200 deducted and 400 added) has been included in the revenue.Also, the rest has been divided into such as 400 deferred revenue as current liability and 800 non current liability.
Please could you explain it by giving its debit and credit, I really find hardships to comprehend it.I am stuck in this question about already two days.
Thanks in advance.

My question is that why it has not been included?

Revenue (267,900 – 1,200 (w (i)) + 18,750 (w (ii))) 285,450
Cost of sales (w (iii)) (192,500) ––––––––
Gross profit 92,950
Distribution costs (20,000)
Administrative expenses (22,000)
Other operating income from royalties 300
Finance costs (150 + 2,206 (w (v))) (2,356) ––––––––
Profit before tax 48,894
Income tax expense (11,400 + 1,550 – 1,100 (w (vi))) (11,850) ––––––––
Profit for the year 37,044
Other comprehensive income Items that will not be reclassified to profit or loss
Gain on revaluation of land and buildings (2,000 + 7,200) (w (iv)) 9,200 ––––––––
Total comprehensive income for the year 46,244 ––––––––

Part of SFTP

Non-current liabilities
Deferred tax (w (vi)) 3,700
Deferred revenue (w (i)) 800
5% convertible loan note (2018) (w (v)) 28,276 –––––––
Current liabilities
Trade payables 46,400
Deferred revenue (w (i)) 400
Bank overdraft 2,700
Current tax payable 11,400

Product and servicing sale Under IFRS 15 Revenue from Contracts with Customers, sales made which include revenue for on-going servicing work must have part of the revenue deferred and any discount offered to stand-alone selling prices must (normally) be allocated to each component pro rata to the stand-alone selling prices. The stand-alone selling price of the product and the servicing work would be $20 million ($18 million and $2 million (500 x 4 years) respectively). The actual combined selling price of $16 million represents a 20% discount on the stand-alone selling prices ((20,000 – 16,000)/(18,000 + 2,000)). Thus the sales revenue of $16 million would be allocated $14·4 million (18,000 x 80%) to the product and $1·6 million (2,000 x 80%) to the servicing. At 31 March 2016 there are three more years of servicing work, thus $1·2 million ((1,600 x 3 years/4 years) must be treated as deferred revenue, split $400,000 as a current liability and $800,000 as a non-current liability.

The actual combined selling price of $16 million represents a 20% discount on the stand-alone selling prices”- from my perspective, this is only a 10% discount! The aggregate price of the contract is $16 million + $500,000 x 4 years giving a total of $18,000,000 and that’s a discount of 10% when compared with the ‘normal’ prices of $18 million + $2,000,000 service charges

So, of the $16,000,000 sale price, we’re going to recognise 90% of that figure = $14,400,000

There is a TOTAL contract value of $18,000,000 of which we’re recognising $14,400,000 immediately as revenue and that leaves us with $3,600,000 to mess around with

Of that $3,600,000 $500,000 is taken as revenue in each of 4 years so that leaves us with just $1,600,000 to allocate and, since it’s a four year contract, we’ll take $400,000 in each of the four years

That’s $400,000 this year and $400,000 next year (so that’s current) and the remainder of $800,000 taken in years 3 and 4 so they are deferred beyond 12 months

You ask “Why do I have to recognize revenue only 400 and not 3600?”

$2,000,000 of that $3,600,000 relates to ongoing service obligations and is spread over the 4 year period. That $2,000,000 will be the subject of 4 separate invoices of $500,000 each in each of the 4 years so none of that amount is recognised as deferred and is recognised instead as revenue in each of those years of service

The remainder of $1,600,000 I believe I have explained above

OK?