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January 15, 2022 at 10:58 am #646048thanh123
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Hello tutor, I have a question extracted from BPP Kit.
Question: Exhibit 2 – Royalty fee
Kiki Co’s best-selling range of toys is called Scarimon. In 20X6 Colour Co, another listed
company entered into a contract with Kiki Co for the rights to use Scarimon characters and
imagery in a monthly comic book. The contract terms state that Colour must pay Kiki Co a
royalty fee for every issue of the comic book which is sold. Before signing the contract, Kiki Co determined that Colour Co had a strong credit rating. Throughout 20X6, Colour Co provided Kiki Co with monthly sales figures and paid all amounts due in the agreed-upon period. At the beginning of 20X7, Colour Co experienced cash flow problems. These were expected to be short term. Colour Co made nominal payments to Kiki Co in relation to comic sales for the first half of the year. At the beginning of July 20X7, Colour Co lost access to credit facilities and several major customers. Colour Co continued to sell Scarimon comics online and through specialist retailers but made no further payments to Kiki Co.
To be honest, I understand the answer from BPP kit. But it doesn’t have how to calculate which may be so confused.
+ 5/1/20X0: Colour Co sells books to clients, so Kiki Co will record revenue. Because, the revenue is recorded when book is transferred the control to clients (risk, rewards, possessions).
+ 31/1/20X0: Colour Co sends to Kiki Co the monthly sales figures & paid all amount at the end of moth.
It may be so confused. IFRS 15 states that recognition of revenue when transfer the control, this means that 5/1/20X0 must record revenue. But Kiki Co does not know how many products are sold in order to record revenue. Kiki Co only knows when Colour Co sends the monthly sales figures on 31/1/20X0, at this time, Kiki Co will know a exact number of books sold.
I am so confused. When Kiki Co should record revenue 5/1/20X0 or 31/1/20X0 ?
Please to help me to answer the question. Thanks tutor a lot !
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