Hello Tutor,
Kiki co
Royalty fee
Kiki 's best-selling range of toys is called Scarimon. In 20X6, Colour Co (Colour), another
listed company, entered into a contract with Kiki for the rights to use Scarimon
characters and imagery in a monthly comic book. The contract terms state that Colour
must pay Kiki a royalty fee for every issue of the comic book which is sold. Before
signing the contract, Kiki determined that Colour had a strong credit rating.
Throughout 20X6, Colour provided Kiki with monthly sales figures and paid all amounts
due in the agreed-upon period.
At the beginning of 20X7, Colour experienced cash flow problems. These were
expected to be short term. Colour made nominal payments to Kiki in relation to comic
sales for the first half of the year. At the beginning of July 20X7, Colour lost access to
credit facilities and several major customers. Colour continued to sell Scarimon comics
online and through special retailers but made no further royalty payments to Kiki.
Requirement
(b) Using exhibit 2, and in accordance with IFRS Accounting Standards, explain the
implications of Colour's cash flow problems on Kiki's financial statements for the
year ended 31 December 20X7. (6 marks)
Is the loss allowance here considered an expense or a balance sheet item.
Does it directly reduce the receivable balance ?
Becuse it says in the model answer that any increase or decrease in the allowance should be shown in the operating section of the profit and loss.
Thanks,