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Revenue Example 7 – ACCA Financial Reporting (FR)

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  5. This method is from IFRS 11 and not IFRS 15. For the exam periods up to and including June 2022, the FR examining team will award credit for either approach. The importance of showing your workings in Section C (Constructed Response questions) cannot be over emphasised as the marker will be able to award credit based on the workings available.
    From September 2022 onwards, credit will only be awarded for the correct IFRS 15 approach.
    https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/assets-liabilities.html

  6. It seems that the method for computing contract asset and cost charged to the profit and loss has changed based on fr technical article. Contract asset is revenue to date less billing to date and cost charged as incurred . Please could you comment on this please.

  8. Hi!

    I’m trying to make entries to get SFP and SPL, could you please confirm or correct me?

    1) Costs:
    Dr Due from customers $52,000 – costs attributable to work
    Dr Inventory $8,000 – inventory for future use
    Cr Bank $(60,000)

    2) Receivables:
    Dr Receivables $45,000 – progress billing to date
    Cr Due from customers $(45,000) – reducing outstanding amount due from customer

    Dr Bank $26,500 – Cash received
    Cr Receivables $(26,500) – leaves us with $18,500 outstanding receivables on SFP

    3) Revenue and costs
    Dr Due from customers $12,800 (balancing)
    Dr Costs $43,200
    Cr Revenue $(56,000)

  9. In SFP while calculating Contract asset why didnt we take cost to date as 55200 (52000+(40%of 8000)). It says to be used in future years but on contrary it doesn’t say it is not used in first year?

    • Because we have already billed 45,000 to customer, which means he should have paid 45,000 out of the total asset value.

      The other thing is that he haven’t yet paid 45,000 in full, but just 26,500. Maybe he’s late with his payment, or we billed 18,500 on December 20 and he has 30 days to pay. In either case, we’ve billed but not yet received = Receivables at 18,500.

      Contract assets will accumulate costs and profits overtime, so we need to deduct accumulated billed amount, not just outstanding one. Because if he (in a lucky coincidence) pays everything at the same moment we bill it, then Outstanding Receivables will always be zero, and we will never deduct anything, therefore Contract asset will always look increase in value and look like we’ve never received any cash for it.

      • The “underlying” asset value is 64,800=52,000+12,800. But once you invoice even part of it, you are, as it were transforming it into other asset i.e receivables. Again, if part of receivables is actually paid, we have yet another transformation of assets AR => cash. However, please note that at any point in time the whole asset family is worth 64,800. Recording subsequent transactions in a manner explained by Chris, we insure that original (underlying) asset value is not partly doubled at any time.
        52,000+12,800-(45,000+45,000)-(26,500+26,500) = 52,000+12,800

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