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september 2020/ december 2020

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › september 2020/ december 2020

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by Kim Smith.
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    Posts
  • September 20, 2023 at 4:45 pm #692342
    xyzc
    Participant
    • Topics: 413
    • Replies: 175
    • ☆☆☆☆

    The following is written in the question:
    Customers pay a 25% deposit on signing the contract with the balance payable when control of the playground is transferred to the customer.
    For this risk, could current liabilities be understated or non current liabilities be understated and why

    September 20, 2023 at 5:40 pm #692346
    Kim Smith
    Keymaster
    • Topics: 135
    • Replies: 8325
    • ☆☆☆☆☆

    Please note that a Q name would be helpful in identifying which Q it is that you are referring to – I don’t know the exams by heart (!)

    Per the answer (do you not know where to find these?)
    “The deposits should not be recognised as revenue immediately and instead should be recognised as deferred income (contract liabilities) within CURRENT liabilities until the performance obligations, as per the contracts, have been satisfied.”

    “There is a risk that revenue is overstated and CURRENT liabilities understated if the deposits have been recorded within revenue.”

    It must be current because the company’s obligation to repay a deposit is immedate and ongoing until the contract is fulfilled. If, at any time (and for any reason), the company were to cancel the contract, the deposit would be repayable to the customer.

    September 24, 2023 at 12:36 pm #692473
    xyzc
    Participant
    • Topics: 413
    • Replies: 175
    • ☆☆☆☆

    But what if the company has performed work to the value of 25%

    September 24, 2023 at 5:46 pm #692480
    Kim Smith
    Keymaster
    • Topics: 135
    • Replies: 8325
    • ☆☆☆☆☆

    25% fulfilment of a contract is unlikely to be of any use to a customer.

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