ACCT20002 Lecture Notes - Lecture 6: Deferred Income, Record Commission, Revenue Recognition
5 Jun 2018
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SOLUTION FOR INCLASS TUTORIAL SOLUTIONS: REVENUE
Exercise 15.6
Revenue recognition – sale of goods
In each of the following situations, state at which date, if any, revenue will be recognised.
1. A contract for the sale of goods is entered into on 1 May 2019. The goods are delivered
on 15 May 2019. The buyer pays for the goods on 30 May 2019. The contract contains
a clause that entitles the buyer to rescind the purchase at any time. This is in addition
to normal warranty conditions.
2. A contract for the sale of goods is entered into on 1 May 2019. The goods are delivered
on 15 May 2019. The buyer pays for the goods on 30 May 2019. The contract contains
a clause that entitles the buyer to return the goods up until 30 June 2019 if the goods do
not perform according to their specification.
3. A contract for the sale of goods is entered into on 1 May 2019. The goods are delivered
on 15 May 2019. The contract contains a clause that states that the buyer shall pay only
for those goods that it sells to a third party for the period ended 31 August 2019. Any
goods not sold to a third party by that date will be returned to the seller.
4. Retail goods are sold with normal provisions allowing the customer to return the goods
if the goods do not perform satisfactorily. The goods are invoiced on 1 May 2019 and
the customer pays cash for them on that date.
(LO4)
1. No revenue is recognised because the customer has the right to rescind the purchase at any
time – beyond normal warranty conditions. The cash is recorded on receipt with the credit
being recorded as a borrowing.
2. Revenue is recognised on 30 June 2019.This is the date at which the seller has no further
performance obligations.
3. Revenue is recognised only at the dates the buyer on-sells the goods to a third party.
4. Revenue is recognised on 1 May 2019. The right of return is a normal warranty clause and is
included in determining the measurement of the revenue.
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Exercise 15.7
Revenue recognition – rendering of services
On 1 February 2020, MacroDot Ltd entered into an agreement with Customer S to develop
a new database system (both hardware and software) for Customer S. The agreement states
that the total consideration to be paid for the system will be $860 000. MacroDot Ltd expects
that its total costs for the system will be $670 000. As the end of its reporting period, 30 June
2020, MacroDot Ltd had incurred labour costs of $130 000 and materials costs of $360 000.
Of the materials costs, $60 000 is in respect of materials that have not yet been used on the
system. Of the labour costs, $25 000 is an advance payment to a subcontractor who had not
performed their work on the project as at 30 June 2020. As at 30 June 2020, Customer S
had made progress payments to MacroDot Ltd of $500 000.
MacroDot Ltd calculates the measurement of progress using input methods in accordance
with paragraph B18 of AASB 15/IFRS 15.
Required
Calculate the revenue to be recognised by MacroDot Ltd for the year ended 30 June 2020
and prepare the journal entries to record the transactions described. Assume all of
MacroDot Ltd’s costs are paid for in cash. (LO4)
Total costs incurred to date: 490 000 ($360 000 + $130 000)
Less:
Costs in respect of services not yet performed: 85 000 ($60 000 + $25 000)
Total 405 000 (a)
Total estimated costs 670 000 (b)
Progress 60.448% [(a) / (b)]
Total estimated revenue under the agreement 860 000 (c)
Revenue to be recognised at 30 June 2020 519 851 [60.448% x (c)]
Journal Entries
DR Expenses 490 000
CR Cash 490 000
(To record expenses for costs incurred up to 30 June 2020)
If MacroDot Ltd could sustain an argument that the $85 000 costs incurred in respect of services
yet to be delivered could be deferred until those services are delivered then it could capitalise
those costs as follows:
DR Deferred expenses 85 000
CR Expenses 85 000
(To record deferral of expenses related to future revenue)
DR Receivable from Customer S 519 851
CR Revenue 519 851
(To record revenue in accordance with the % completion method)
DR Cash 500 000
CR Receivable from Customer S 500 000
(To record payments made by Customer S)
Profit on the contract as at 30 June 2020 assuming expenses of $85,000 are deferred:
Revenue 519 851
Less expenses 405 000
Profit 114 851
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find more resources at oneclass.com
Document Summary
In each of the following situations, state at which date, if any, revenue will be recognised: a contract for the sale of goods is entered into on 1 may 2019. The contract contains a clause that entitles the buyer to rescind the purchase at any time. This is in addition to normal warranty conditions: a contract for the sale of goods is entered into on 1 may 2019. The buyer pays for the goods on 30 may 2019. The goods are delivered on 15 may 2019. The contract contains a clause that states that the buyer shall pay only for those goods that it sells to a third party for the period ended 31 august 2019. Any goods not sold to a third party by that date will be returned to the seller: retail goods are sold with normal provisions allowing the customer to return the goods if the goods do not perform satisfactorily.
