WE-EXITO CONSULTING GROUP

IFRS 15-REVENUE FROM CONTRACT WITH CUSTOMER

BY:
CPA MWITA
QUESTION ONE

TDF is a company that manufactures office furniture. A customer placed an order on 22

December 20X4 for an office desk at a price of TZS300,000 plus sales tax at 20% of TZS60,000.
The desk was delivered to the customer on 25 January 20X5, who accepted the goods as
satisfactory by signing a delivery note. TDF then invoiced the customer for the goods on 1
February 20X5. The customer paid TZS360,000 to TDF on 1 March 20X5.
Required:
How should TDF account for revenue?

QUESTION TWO
D&N Limited are engaged in the construction of a Mwanga tower. The following are the details
of the contract:
TZS “000”
Contract revenue 20,000
Cost incurred to date 8,000
Estimated cost to complete 4,000
Progress Billings 12,000

There is a 10% retention from progress billings. The company believes that the outcome of this
contract can be estimated reliably.
The company policy for measuring the percentage of completion of a contract is: Progress
billings/Total contract revenue x 100.
The contract was commenced in the current year and is expected to take two years in total to
complete.
Required:
Show the relevant extracts in relation to the construction of the Mwanga Tower.
QUESTION THREE
CCCN Limited designs and builds indoor sports arenas. The company commenced a four-year
contract early in 2007. The contract price was initially agreed at TZS12 million. Profit, which
was reasonably foreseeable from the year ended 31st December 2007 is to be taken on a costs
basis. Revenue is to be taken on a consistent basis.
Relevant figures are as follows:

2007 2008 2009 2010

TZS “000” TZS TZS TZS “000”
“000” “000”
Costs incurred in year 2,750 3,000 4,200 1,150
Anticipated future costs 7,750 7,750 1,550 -
Work certified and invoiced to date 3,000 5,000 11,000 12,500

Required:
Show how the above would be disclosed in the income statement and Statement of Financial
Position of CCCN Limited for each of the four years above. Work to the nearest TZS “000”

QUESTION FOUR
Stupa Limited (SL) sells electrical products at following standalone prices:

Products Rupees
E-1 30,000
E-2 30,000
E-3 50,000

Required:

Calculate transaction price to be allocated to each product under each of the following
independent situations:

i. SL offered to sell one unit of each of the above products for Rs. 90,000. SL regularly
sells one unit each of E-2 and E-3 together for Rs. 70,000.
ii. SL offered to sell one unit of E-1 and two units of E-3 for Rs. 104,000.

QUESTION FIVE

a) On 1 October 2018, Kushan Construction Limited (KCL) entered into a contract to

construct a commercial building for a customer for Rs. 50 million and a bonus of Rs. 10
million if the building is completed on or before 31 December 2019.
 Till 30 June 2019, KCL expected that the building will be completed within time at a total
cost of Rs. 40 million. However, due to bad weather and time involved in regulatory
approvals, the building was completed on 28 February 2020 at a total cost of Rs. 42 million
of which Rs. 26 million was incurred till 30 June 2019.
Required:
Compute profit to be recognized for the years ended 30 June 2019 and 2020, if:
i. performance obligation under the contract is satisfied over time.
ii. performance obligation under the contract is satisfied at a point in time.
b) The nature, timing and amount of consideration promised by a customer affect the estimate
of the transaction price.
c) Define the term ‘transaction price’ and list down the factors that may affect determination
of the transaction price

QUESTION SIX

Financial statements of Parodia Motors Limited (PML) for the year ended 30 June 2021 are
under preparation. While reviewing revenues from contract with customers, following matters
have been identified:

i. On 1 November 2020, PML sold Car-A to Alpha Limited (AL) for Rs. 5 million. As per
the contract, Rs. 1 million would be paid immediately and the balance would be paid
after 2 years. The accountant has recognized revenue to the extent of the cost of Car-A
i.e., Rs. 3.5 million and remaining revenue would be recognized upon receipt of balance
from AL.
ii. On 1 January 2021, PML entered into six months’ contract with Beta Limited (BL) to sell
Car-B for Rs. 3.5 million per unit. As per the contract, if BL purchases more than 10
units during the contract period, the price will be retrospectively reduced to Rs. 3.4
million per unit. At the inception of the contract, PML concluded that BL will meet the
threshold for the discount. BL purchased 11th unit of Car-B on 28 June 2021 for which
no revenue has been recorded. BL has made payments of all units except 11th unit which
will be settled in July 2021.
 iii. On 1 February 2021, PML sold Car-C to Gamma Limited (GL) for Rs. 3 million and
recognized the entire amount as revenue. PML also provided GL a Rs. 0.2 million
discount vouchers for any future purchases of spare parts within one year. There is 80%
likelihood that GL will redeem the discount voucher and will purchase spare parts within
one year. By the end of the year, no spare parts were purchased by GL. PML normally
sells Car-C for Rs. 3 million with no discount voucher.
iv. On 20 February 2021, PML sold Car-D to Delta Limited (DL) with one-year free
maintenance services at a lumpsum payment of Rs. 3.6 million. Payment was made on 1
March 2021 upon delivery of Car-D to DL. The revenue of Rs. 1.2 million (i.e. 4/12 of
Rs. 3.6 million) has been recognized. PML normally sells Car-D and annual maintenance
services separately for Rs. 3.5 million and Rs. 0.3 million respectively.
Discount rate of 12% per annum may be used wherever required.
Required:
Prepare correcting entries for the year ended 30 June 2021 in accordance with IFRS 15
‘Revenue from Contracts with Customers’. (16 Marks)

QUESTION SEVEN

Financial statements of Trich Mir Limited (TML) for the year ended 31 December 2019 are
under preparation. While reviewing revenues from contract with customers, following matters
have been identified:

i. On 1 October 2019, TML sold Machine C to Chan Limited for Rs. 25 million. As per the
contract, payment would be made after 2 years. The accountant recognised sales revenue
of Rs. 25 million upon delivery on 1 October 2019. Further, commission paid to sales
employees for winning the contract of Rs. 1.6 million was capitalised and is being
amortised over 2 years period. Applicable discount rate is 10% per annum.
ii. TML entered into a contract to manufacture a specialised machine for Dhan Limited at a
price of Rs. 30 million. The contract meets the criteria of recognition of revenue over
time. At the year end, the machine was 60% complete and it was estimated that a further
cost of Rs. 10 million would be incurred. Cost of Rs. 15 million incurred till year end has
 been included in closing inventory and receipts of Rs. 11 million have been credited to
revenues.
iii. TML entered into a contract to sell one unit of Machine A and Machine B for a total price
of Rs. 16 million. Machine A was delivered in December 2019 to the customer while
Machine B was delivered in January 2020. The consideration of Rs. 16 million is due
only after TML transfers both the machines to the customer. TML sells machines A and
B at standalone prices of Rs. 12 million and Rs. 8 million respectively. The accountant
recognised receivable and revenue of Rs. 12 million upon delivery of Machine A.
Required:
Prepare correcting entries for the year ended 31 December 2019 in accordance with IFRS
15 ‘Revenue from Contracts with Customers’. (14
Marks)

QUESTION EIGHT

On 1 January 2021, Covaxin Telecom (CT) announced a new annual promotional package for its
customers. The package comprises of a mobile phone, full year unlimited on-net calls and 1,000
minutes per month on other networks. Package price is Rs. 11,550 per quarter payable in
advance on the first day of each quarter. At the end of the contract, the phone would not be
returned to CT.

On the first day of the promotional announcement, CT sold 1,000 packages. Based on the data
available with CT, it is expected that each customer would utilize 10,000 minutes of other
networks with quarterly break-up as under:
Quarter ending Minutes
st
31 March 2021 2,700
th
30 June 2021 2,000
30th September 2021 2,900
st
31 December 2021 2,400

The mobile phone has a retail value of Rs. 34,000, if sold separately. A monthly subscription for
unlimited on-net calls is Rs. 500 while every call on other networks is charged at Rs. 1.5 per
minute, if billed separately.
Required:
Compute the quarterly revenue to be recognised for the quarters ending 31 March 2021 and 30
June 2021