Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Sep2015 Q1
- This topic has 5 replies, 2 voices, and was last updated 6 years ago by MikeLittle.
- May 8, 2016 at 7:11 am #314076
The Revenue as per TB on 30th June 2015 is 113,500
This revenue includes a $3million sale made on 1/1/2015 of maturing goods which are not biological assets. The carrying amount of these goods at the date of sale was $2million. The Co. is still in possession of the goods(but they have not been included in the inventory count) and has an unexercised option to repurchase them at any time in the next three years. In three years’ time the goods are expected to be worth $5million. The repurchase price will be the original selling price plus interest at 10%p.a from the date of sale to the date of purchase.
Could you please explain how the adjustments needs to done in the SOPL?May 8, 2016 at 8:44 am #314095
“The Revenue as per TB on 30th June 2015 is 113,500
This revenue includes a $3million sale ….” – can you understand me if I say that this type of post can be very confusing!
How can a “sale” of $3,000,000 possibly be included within a revenue figure of $113,500?
So, I presume that, in this case, the revenue is in fact $113,500,000
Now, the question is …. have substantially the whole of the risks and rewards of ownership been transferred?
And, as is invariably the case in this type of matter within an exam question, the answer appears to be “No” because the entity has the option to repurchase at original selling price (plus compound interest at 10%) at any time within the next three years.
So the “sale” should not have been included within revenue – it’s not a sale
Reverse the revenue entry (I’m assuming that cash was received given that the transaction took place 6 months ago)
Dr Revenue $3,000,000
Cr Cash $3,000,000
and acknowledge the reality of the transaction as being a secured loan
Dr Cash $3,000,000
Cr Loan $3,000,000
(you can short cut the cash entries and simply debit revenue and credit loan)
But, if it’s not a sale, the goods still belong to the entity so should be included within cost of sales.
So we now need to bring those goods back into inventory with this entry:
Dr Inventory $2,000,000 on statement of financial position
Cr Cost of sales $2,000,000 on statement of profit or loss
All clear?May 9, 2016 at 12:36 am #314205
Yes. Its clear now.. Sorry about the missing 0’s.. missed that part..May 9, 2016 at 6:10 am #314218
You’re welcome …. and no problem this time but I’ve had long threads with others where those missing zeros caused a lot of problems until the student said “……but it’s not thousands, it’s millions”
I’m surprised you didn’t hear the howl of frustration when I read that!May 9, 2016 at 6:57 am #314221
I know it can be pretty frustrating at times. I’m really sorry about it.
I will keep in mind next time.May 9, 2016 at 7:20 am #314226
As I said, no problem
- You must be logged in to reply to this topic.