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verge has paid for $1 at the commencement of the contract. the total revenue that the contract will generate is $5, so this should be deferred in a straight line basis. therefore this is ias 8 prior period error?
I have done:
31/3/2013- 1.2m * 1/1.06(2)= 1.06, the answers did not say this. I would think it is discounted for the second year.
the $1m does not get discounted because paid at the date of commencement of the contract, is this correct?
If the initial payment has been made on the first day of the accounting period and we’re now at the end of that accounting period, then there’s only one more year to go. Hence discounting only for the one more year
Clear?
yes but answers for year 0 31/3/2012 they have discounted it. by 1/1.06
and 31/3/2013 they have discounted it again 1/1.06 why that?
can you answer my first part
verge has paid for $1 at the commencement of the contract. the total revenue that the contract will generate is $5, so this should be deferred in a straight line basis. therefore this is ias 8 prior period error?
thank you
If payment is due over two years it has to be discounted twice
From the information you’ve given me, that doesn’t sound like an IAS 8 prior year adjustment
Which question is it and I’ll see if I can find a copy
Ok
Sorry that I asked for a reference to the exam question!
Ask yourself this – at the END of 2012, how much longer is it before the amount will be received? It’s 2 years – so we discount it twice
At the END of 2013, there’s only one more year to go before we receive the payment, so we discount it for just one year
Is that better?
Is this an error under IAS8 prior year adjustments? No (I’ve deleted the question but I think we’re doing accounts for 2012) and the 1m was received at the start of 2012 so it wasn’t dealt with in the 2011 financial statements
Also your original post asked whether we didn’t discount the 1m and suggested it was because the 1m was received “today” you proposed that we didn’t discount because it was actually received and you asked whether this was correct.
Yes, we don’t discount because it has been received and is not like the remaining receivables that will not be paid until the end of the third year
Ok?
the accounts we are doing is 2013, $1m received was for 2012 which we have not taken into account in 2012 is this right? which is prior year error, answers says error rather than adjustment
The printed answer is showing the revenue to be recognised over the three separate years. The 1m is correctly recognised in 2012
The 2013 financial statements show the 1.6m discounted for the year 2014 because that money will be received in 12 months’ time so discount for only one year
I think the printed answer is showing how / why the amounts of revenue are to be recognised over the three years
Does that do it?
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