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Professor, i have a question related to the video lecture you made on “Revenue”
You say that when a sales contract has a financing component, we recognise the finance income and revenue separately, because they are 2 separate POs.
I actually have some qualms about this.
How can the two be distinct POs? one of the criteria for Distinct POs is that “promise to provide good or service is separately identifiable from other contractual promises”, but here in this context this isn’t so, there is ONLY ONE contractual promise i.e. to provide the car. The financing component is implicit and not identifiable by most lay car customers. so how are they two seperate POs?
seperate treatment under different headings i understand; but i genuinely don’t think they should be considered as distinct POs.
The basic point is that if you don’t separate it out out, you will get it marked wrong. 🙂
When you sell goods on credit the corresponding financial asset must be discounted.
You can either justify it on the grounds of 2POs or on the rule that revenue receivable after more than one year must be measured at present value.
The idea of IFRS is that we reflect the SUBSTANCE of transactions. If the transaction is part car sale and part financing we must reflect this in the P&L. Otherwise we will turn into bean counters. 🙂
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