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Hi sir,
Part i
1) why did we use borrowing rate? Whats logic behind it
2) in year 2016
Why we record interest
252000×5%= 12600It shouldnt be same everyear as 240000×5%=12000 ?
For part ii
3) idont understand meaning/ how to deal w this in q
“Tang conclude that it is highly probable that significant reversal in amount if culmulative revenue recognized will occur”
4) i didnt understand how to calculate the additional revenue after modification
I am fine with calculating the new transaction price which is 1710,000
Thanks v much
Hi,
1) We could adjust the borrowing rate for any amount of risk we so deem necessary which doesn’t reflect fairly the level of risk attached to the borrowing, hence we use the rate at which we can borrow.
2) We apply the interest to the outstanding liability each year so that the interest is higher each year to match the outstanding liability.
3) Due to the fact that we are reliant on others to supply the goods then there is a risk that any revenue recognised over the life of the contract might be reversed if it cannot be completed
4) We have already recognised revenue of $975,000 and at the end of the modification it should now be 60.5% of $1,710,000 on a cumulative basis. The difference between the two is the amount of revenue that is recognised in the current period.
Thanks
Thanks
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