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Transaction Price

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Transaction Price

  • This topic has 1 reply, 2 voices, and was last updated 11 months ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • March 3, 2022 at 3:20 pm #649735
    Ahoque123
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Hi I have a work book which is excellent, but I’m looking at something which is confusing me and it has done so previously.

    We got a company A sold goods to company B on 1 Jan 2×2 for £200,000 payable on 31 Dec 2×3 with no refunds allowed.
    relevant discount rate is 6%

    what amount of revenue and finance income should be recognised in company A’s statement of profit and loss for the year ended 31 Dec 2×2?

    apparently, revenue = £200,000 x 0.89 (2 year 6% discount rate) = £178,000

    Finance income in 2×2 + 178,000 x 6% = £10, 680

    I just dont get how this actually works?

    where is the 0.89 from? and what is the finance income ?

    March 3, 2022 at 7:59 pm #649764
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    Hi,

    The revenue recognised initially is the present value of the 200,000 discounted by two years at 6%. The 0.89 is the discount factor from using 6% (=1/1.06/1.06), which when applied to the 200,000 gives the revenue of 178,000.

    Following the initial sale we then recognise finance income on the 178,000 at 6% each year. So 6% of 178,000, being the 10,680 is the finance income this year. This is recorded in profit or loss and the other side goes to the outstanding receivable.

    Thanks

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    Posts
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