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Is that a question? Or is it an instruction? Because, if it’s an instruction, I shall ignore it!
Well, Anthon, I have to ask “Why do you want to know?” before I start thinking about answering you!
So, why do you want to know?
I want to know what steps an entity would apply to recognize revenue under IFRS 15
Yes, I understand your question but you are not answering mine!
Let me ask again.
Why do you want to know?
I saw this thread and decided not to open a new one.
So my question: is time value of money still applicable to IFRS 15 and how do you account for it?
For example: A cellphone sold on an installment sale agreement over 24 months as well as services such as minutes, etc. The phone is worth $400 and the payments are $50/month.
From my understanding: we record the value of the phone as revenue on the day the risks and rewards are passed to the customer and the excess value $800 ($50 x 24 months – $400) is accounted for evenly over the 24 months.
What I don’t understand is how do we account for the interest on the cellphone over the 24 months?
If you have read the previous posts between me and Anthonchirwa, you may detect a growing frustration of mine when I repeatedly asked “Why do you want to know?” and he steadfastly refused to answer.
So now I’ll ask you – “Why do you want to know”
But let me pre-empt your response and say that for December 2014 IFRS15 is not in your syllabus
OK?
Oh sorry, for some reason I thought your question was more for introspection than practical reasons. I study at the University of KwaZulu Natal. I’m a 3rd year studying towards a CA(SA). Our course administrators decided that because we would need to learn it next year anyway, they might as well teach it to us now and therefore it is examinable for us.
EDIT: Introspection meaning I thought you were hoping he would discover the answer for himself
Here’s a quote from the Deloitte IASPLUS website on IFRS 15
“Where consideration is paid in advance or in arrears, the entity will need to consider whether the contract includes a significant financing arrangement and, if so, adjust for the time value of money. [IFRS 15:60] ”
Does that answer it?
Maybe not …… in discounting for the time value of money, cash flows are always anticipated to arise at the end of the financial year. Thus, the 12 months’ instalments will all be treated as arising / being received as at the year end
Now does that answer it?
I think I understand.. So we record the full revenue for the phone, calculate the interest applicable for each financial year and record it at the end of the relevant year?
Discounted into a deferred income account and then released over the life of the contract together with the unrolled discount
Hi Mike.
Can you please make an example of the above treatment of discounting the value of money.If our cost of capital is 10% and we anticipate receiving 12 lots of $50 over each of the next two years, we shall record as a receivable $600 x 1/1.10 ($545.45) and $600 x 1/1.10 x 1/1.10 ($495.86)
Then, at the end of the first year we can unroll that discount of $54.54 and $49.59 (Dr Receivable Cr Finance Income) and at the end of the second year unroll the remaining $54.54
Meanwhile we have received $600 in year 1 Dr Cash Cr Receivable and …
….. the same again in year 2OK?
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