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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 whyPlease 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.
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