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- November 25, 2016 at 9:12 pm #351508
Hello
I’m quite stuck with contract assets in context of IFRS15. There’s an example in the textbook of a mobile phone contract inclusive of ‘free’ handset. Initial entry is:
debit receivable (unbilled revenue) 460.80
credit revenue 460.80which I understand as accounting for provision of the handset as fulfilment of a performance obligation. The second entry is at the end of the month on receipt of the customers monthly payment:
debit receivable 200
credit revenue 161.60
credit receivable 38.40I understand the credit entries – splitting the receipt between the handset cost and network services cost in the relevant proportion. But I don’t understand why the debit entry is to a receivable, a receivable being ‘an entity’s right to consideration that is unconditional, ie only the passage of time is required before payment is due’. why is the passage of time required, as the customer has paid? I would have guessed the debit entry would be to the bank.
Also a point from another question that has confused me – ‘Electron buys and sells oil and currently has a number of oil trading contracts. the contracts to purchase oil are treated as non-current assets and amortised over the contracts durations.’
I struggle with the concept of a contract to purchase being an asset. Is this an example of the following:
‘the incremental costs of obtaining a contract (such as sales commission) are recognised as an asset if the entity expects to recover these costs’. So that when it says the contracts to purchase oil are treated as non current assets, it means the costs incurred in obtaining the contracts? I don’t feel that I understand this.Thanks in advance
November 27, 2016 at 9:55 pm #352009Hi,
I think there might be a tying mistake in the materials that you’r using. If they receive cash at the end of the month then they have to be recording the debit entry to cash.
For the point on the contracts it is talking about how much we are going to pay to purchase the contracts. Think of it as when we purchase the contract in future we are going to receive economic benefits over the time we use the contract and so meet the definition of a asset.
Thanks
December 2, 2016 at 1:12 pm #353175OK, thanks very much. i did think it might be a typo.
I think i was confused with the contracts because i don’t think of them as being purchased. So these are contracts held for trading and making a profit on what you are contracted to sell?December 4, 2016 at 7:12 pm #353800Yes, sounds right, and it was a horrible question when it was originally set.
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