CLASS 5 Revenue from contract with customers (IFRS 15) &

Accounting for government grants and disclosure of government assistance (IAS 20)
1. There is following information
The narrative 5 steps
Carraway Co entered into a contract on 1 January 20X5 to construct a
factory for Seed Co.
Carraway Co has an enforceable right for payment in respect of construction
completed to date.
Seed Co obtains control of the factory as the asset is constructed.
The contract states that the performance obligations are measured
according to certificates issued by the surveyor.
The total contract price was $2.8 million which is expected to generate a
profit for Carraway Co.
Carraway Co measures satisfaction of the performance obligations under
the contract by reference to the value of work certified as complete. At 31
December 20X5 the contract was certified by the surveyor as 35% complete.
$800,000 has been invoiced to the customer but not yet paid.
Identify be selecting the correct options below, whether the contract will be recognized as a contract
asset or liability and what the carrying amount will be in the statement of financial position of Carraway
Co as at 31 December 20X5?

Asset or liability Carrying amount

Solution:
$`000
Revenue recognised
Amounts invoiced
Contract asset (liability)

2. IFRS 15 Revenue from Contracts with Customers identifies five steps in the core principle of
recognising revenue.
Which of the following is NOT a step in the recognition process?
A. Identify the performance obligations in a contract
B. Allocate the transaction price to the performance obligations in the contract
C. Identify the contract with a customer
D. Assess whether significant risks and rewards of ownership have been transferred to the buyer

3. Which of the following indicators is NOT considered when determining whether performance obligations
are satisfied at a point in time?
A. The customer is likely to reject delivery of the asset
B. The customer has the significant risks and rewards of ownership of the asset
C. The customer has legal title to the asset
D. The customer has an obligation to pay for the asset
 4. On 1 October 20X2 Pricewell entered into a contract to construct a bridge over a river. The total contract
price was $50 million and construction is expected to be completed on 30 September 20X4. The contract
expected to generate a profit for Pricewell Co. The customer obtains control of the bridge as construction
takes place. Costs to date are:
$m
Materials, labour and overhead 12
Depreciation of specialist plant and machinery 3

The value of the work completed at 31 March 20X3 has been agreed at $22 million and the estimated cost
to complete is $10 million. Pricewell recognizes satisfaction of performance obligations determined by the
value of work completed to date.
What is the profit to date on the contract at 31 March 20X3?
A. $15,400,000
B. $7,000,000
C. $25,000,000
D. $Nil

Solution:
$`000
Revenue recognised

Profit recognised at 31 March 20X3

5. The company recognises revenue on the basis of the cost incurred to date as a proportion of the total
expected costs. The client gains the use of the asset during its construction.
The following details apply to a contract where performance obligations are satisfied over time at 31
December 20X5.
$
Total contract revenue 120,000
Costs to date 48,000
Estimated costs to completion 48,000
Amounts invoiced 50,400
Amounts received from customers 40,000

What amount should be recognised as a contract asset in the statement of financial position as at 31
December 20X5?
A. $9,600
B. $12,000
C. $14,400
D. $50,400
Solution:
$`000
Revenue recognised
Amounts invoiced
Contract asset (liability)
6. On 25 June 20X9 Cambrige Co received an order from a new customer, Circus Co, for products with a sales
value of $900,000. Circus Co enclosed a deposit with the order of $90,000.
On 30 June Cambrige Co had not completed credit checks on Circus Co and had not despatched any goods.
Cambrige is considering the following possible entries for this transaction in its financial statements for the
year ended 30 June 20X9.
According to IFRS 15 Revenue from Contracts with Customers, how should Cambrige Co record this
transaction in its financial statements for the year ended 30 June 20X9?
Select your answers from the options available (options may be used more than once and all three
amount boxes must be completed)
Amount ($)
Revenue 900,000

Current liability 810,000

Trade receivables 90,000

nil

7. Repro, a company which sells photocopying equipment, has prepared its draft financial statements for the
year ended 30 September 20X4. It has included the following transactions in revenue at the stated amounts
below.
Which of these has been correctly included in revenue according to IFRS 15 Revenue from contracts with
customers?
A. Agency sales of $250,000 on which Repro is entitled to a commission
B. Sale proceeds of $20,000 for motor vehicles which were no longer required by Repro
C. Sales of $150,000 on 30 September 20X4. The amount invoiced to and received from the customer was
$180,000, which included $30,000 for ongoing servicing work to be done by Repro over the next two
years.
D. Sales of $200,000 on 1 October 20X3 to an established customer which, (with the agreement of Repro),
will be paid on full on 30 September 20X5. Repro has a cost of capital 10%.

8. During the month of March, Jolly Tar sells 10 units of a product for $200 each to SandyBeach. SandyBeach
can claim a 5% prompt payment discount if the invoice is paid within 30 days. SandyBeach has also been
subject to bankruptcy rumours in the national press. Jolly Tar estimates that there is a 20% probability that
SandyBeach will not pay for the goods. What amount of revenue will be included in Jolly Tar’s profit or loss
in respect of this transaction?

A. $nil
B. $1,600
C. $1,900
D. $2,000
 9. Which of the following are acceptable methods of accounting for a government grant relating to an asset
in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance?
(i) Set up the grant as deferred income
(ii) Credit the amount received to profit or loss
(iii) Deduct the grant from the carrying amount of the asset
(iv) Add the grant to the carrying amount of the asset

A. (i) and (ii)

10. Work with Financial statements

consolidated-fs_ifrs_dp-global-group-limited_2020 for class 5.pdf

i) Identify the following information that relates to government grants which included in the financial
statements of DP Global Group Limited
- the amount at the end of 31 December 2020 and 31 December 2019
- type of government grants: grants related to assets or grants related to income
- method of accounting for government grant
ii) What do you know about forgivable loan? What certain prescribed conditions will DP Global Group
Limited meet for forgiveness?

Solution:
(i) 31 December 2020 31 December 2019
₽ `000 ₽ `000
- amount that relates to government
grants
- type of government grants: grants  grants related to assets
related to assets or grants related  grants related to income
to income
- method of accounting for
government grant

(ii) certain prescribed conditions

Assessment progress test (Class 5)  15 min

1. Consignment inventory is an arrangement whereby inventory is held by one party but owned by
another party. It is common in the motor trade.
Which TWO of the following indicate that the inventory in question is consignment inventory?
Manufacturer can require dealer to return the inventory
Dealer has no right of return of the inventory
Manufacturer bears obsolescence risk
Dealer bears slow movement risk

2. A company received a government grant of $400,000 on 1 April 20X6 to facilitate purchase on the same
day of an asset which costs $600,000. The asset has five-year useful life and is depreciated on a 25%
reducing balance basis. Company policy is to account for all grants received as deferred income.
What amount of income will be recognized in respect of the grant in the year to 31 March 20X8?

3. Newmarket`s revenue as shown in its draft statement of profit or loss for the year ended 31 December
20X9 is $27 million. This includes $8 million for a consignment of goods sold on 31 December 20X9 on
which Newmarket will incur ongoing service and support costs for two years after the sale.
The supply of the goods and the provision of service and support are separate performance obligations
under the terms of IFRS 15 Revenue from contracts with customers.
The cost of providing service and support is estimated at $800,000 per annum. Newmarket applies a 30% mark-
up to all service costs.
At what amount should revenue be shown in the statement of profit or loss of Newmarket for the year ended 31
December 20X9? (Ignore the time value of money)