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- August 2, 2018 at 6:20 pm #465891
Hello
Newmarket’s revenue as shown in its draft statement of profit or loss for the year ended 31 December 20X9 is $27 million. This includes $8 million for a consignment of goods sold on 31 December 20X9 on which Newmarket will incur ongoing service and support costs for two years after the sale.
The supply of the goods and the provision of service and support are separate performance obligations under the terms of IFRS 15 Revenue from contracts with customers. The cost of providing service and support is estimated at $800,000 per annum. Newmarket applies a 30% mark-up to all service costs.
At what amount should revenue be shown in the statement of profit or loss of Newmarket for the year ended 31 December 20X9? (Ignore the time value of money.)1. The answer is $24920000 and the working is $27,000-(800*2*130%)
2. My issue is why (800*2*130%) has been deducted from the total sales made?
-Nowhere in the question it says that the sales obtained from the ongoing services has been included in the in the total sales amount, that is, $27,000.Kindly clarify this.
Thanks.
August 3, 2018 at 1:43 pm #465978Hi,
At the start of the second sentence it says that the total of $27m includes the $8m from the sale of the goods and the ongoing service and support costs. We cannot recognise the revenue from the services as they have not yet been provided and so the revenue relating to the services needs to be removed.
Thanks
October 16, 2020 at 9:45 am #589082Thanks a lot Sir. Have a nice weekend ^-^
October 17, 2020 at 8:02 am #589430You’re welcome, you too!
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