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Hi. As with payments received in advance are accreted and hence result in interest income? And what about the opposite? Whats the logic behind? Can u explain double entries for payments received in arrears with random numbers please sir?
Hi,
I’m sorry but can you be a bit clearer on what it is you need answering. More detail is needed please.
Thanks
Like in IFRS 15 they say if significant component is involved then it should be discounted. Now i wanted you by using hypothetical numbers as an example to illustrate
1) how to account for advance payment by customers
2) how to account for payments in arrears
If all above involves significant componentLet me try to assist. Significant financing component exists when consideration will be received after one year from the fulfilment of the performance obligation. in this case, the seller would have given finance to the customer in addition to fulfilment of the contract. The future receipt should be discounted and split between revenue and finance interest income. There is no financing component if the consideration will be received within one year from fulfilment of the performance obligation. For an example, have a look at a question called Verge, I think its from June 2013. Hope the Tutor will clarify.
Thank you.@ematete2005 said:
Let me try to assist. Significant financing component exists when consideration will be received after one year from the fulfilment of the performance obligation. in this case, the seller would have given finance to the customer in addition to fulfilment of the contract. The future receipt should be discounted and split between revenue and finance interest income. There is no financing component if the consideration will be received within one year from fulfilment of the performance obligation. For an example, have a look at a question called Verge, I think its from June 2013. Hope the Tutor will clarify.
Thank you.The concern is the double entries for each i.e for arrears payment and payment in advance. Sometimes there is interest income at times finance cost. That is why i wanted to know double entries would hv been better. Thanks
Hi,
For the payment in advance then I’d also recommend the past exam paper questions Tang too from Dec’15. Have a look at the entries in the answer and if you do not understand then please let me know.
If the payments are in arrears then there would be an initial asset recognised and then the interest entries would be interest income as opposed to interest expense as seen in Tang. Effectively the entries in Tang are reversed.
Thanks
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