ACCA FR · Guided practice (Show me how)
Chapter 16: Revenue from contracts with customers (IFRS 15)
Revenue - the five steps, allocation and financing components
Consider the following revenue contracts. Ignore discounting except in (b).
(a) Ringwell Co sells mobile phones for 'free' when a customer signs up for a 12-month contract. The contract costs the customer $45 per month. A rival network, Linkfast Co, sells the same handset without a contract for $480, and its call and data charges are $20 per month.
(b) Luckers Co sells a car to a customer for $10,000, offering interest-free credit for a three-year period. The car is delivered immediately. The annual market rate of interest on consumer credit to similar customers is 5%; the present value of $1 receivable in three years at 5% is $0.8638.
(c) Lorvent sells computer hardware, supplies and installs software and provides technical support for two years. It sells the supply and installation and the technical support together in a combined contract for $1,600; sold separately, supply and installation is $1,500 and the technical support $500. Lorvent sold a combined contract on 1 July 20X7, when the installation was completed; the support is provided evenly over the two years. Its year end is 31 December 20X7.
(a) Ringwell: a 'free' phone with a contract
Calculate Ringwell Co's transaction price for one 12-month contract, the total stand-alone selling prices of its performance obligations and the revenue allocated to the handset and to the calls and data.
(b) Luckers: a significant financing component
Calculate Luckers Co's transaction price at the delivery date.
(c) Lorvent: allocation and deferred income
Calculate Lorvent's allocation of the contract price and the amounts recognised in the financial statements for the year ended 31 December 20X7.
Opening this exercise…