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paper June 2016 3rd question Downing co
revenue includes an amount of $16m for a sale made 1st April 2015 the sale relates to single product and includes ongoing servicing from Downing co for four years . The normal selling price of the product and the servicing would be $18m and $0.5m per annum ( $2m in total respectively
can u please teach me how to calculate for deferred income and how do we distribute to current liability and non current liability
in the answer deferred is $1.6m and it is distributed to current liability and non current liability as $0.4m and $0.8mthank u sir
Aggregate sale price is $20,000,000 but the deal is for only $16,000,000 (so 80% of the normal price)
The one-off element is recognised as revenue in this first year so recognise 80% * $18,000,000 = $14,400,000
The servicing element of 80% * $500,000 is recognised as revenue as we earn it and we earn it over 4 years
The first year (I assume – you haven’t given me any year end dates) to 31 March, 2016 is now earned so recognise as revenue 80% * $500,000 = $400,000 tis year as well as the $14,400,000
Therefore revenue this year is $14,800,000
The remaining 3 years’ worth of service revenue relates to next year (2017) and the following 2 years (2018 and 2019)
But only 2017 falls within the next 12 months so only 2017 is a current receivable ie 80% * $500,000 is to be recognised as revenue in 2017
The other two years’ worth is deferred ie recognise as deferred revenue 2 * 80% * $500,000 = $800,000
Is that any clearer?
ohh yes its clear thank you so much sir now i understood the logic behind deferred income hope this will help for exam
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