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    Question 2 Solution

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    Ifrs4

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    Question 2 Solution

    Uploaded by

    nyasha
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    Ifrs4

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    © © All Rights Reserved

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    Ifrs4

    Copyright:

    © All Rights Reserved
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    Download as docx, pdf, or txt
    2 views2 pages

    Question 2 Solution

    Uploaded by

    nyasha
    Ifrs4

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Report on the Implications of IFRS 15 - Revenue from contracts with customers for Parafini Ltd.

    (a) (i) The Five Steps for Revenue Recognition


    The five steps for revenue recognition under IFRS 15 are as follows:

    Step 1: Identify the contract(s) with the customer.


    Parafini Ltd. should identify the contract(s) with the customer that creates enforceable rights and
    obligations.

    Step 2: Identify the performance obligations in the contract.


    Parafini Ltd. should identify the distinct goods or services that need to be delivered to the customer.

    Step 3: Determine the transaction price.


    Parafini Ltd. should determine the amount of consideration it expects to receive in exchange for
    delivering the goods or services.

    Step 4: Allocate the transaction price to the performance obligations in the contract.
    Parafini Ltd. should allocate the transaction price to each distinct performance obligation based on its
    relative standalone selling price.

    Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
    Parafini Ltd. should recognize revenue when it satisfies a performance obligation by delivering goods
    or services to the customer.

    (ii) Performance Obligations


    Performance obligations refer to the distinct goods or services that need to be delivered to the
    customer under a contract. A performance obligation can be a promise to transfer a good or service
    to a customer, either individually or as a package of goods or services.

    (iii) Distinct Goods or Services


    A good or service can be defined as distinct if it is both capable of being distinct, meaning the
    customer can benefit from it on its own or with other readily available resources, and it is distinct in
    the context of the contract, meaning the customer can use the good or service as intended under the
    contract.

    (b) Distinct Goods or Services in the Contract between Parafini Ltd. and the Customer
    The distinct goods or services in the contract between Parafini Ltd. and the customer are as follows:

    - The licence for the standard software product


    - Technical support

    The software updates and installation of the software are not distinct goods or services.

    (c) Journal Entries for Revenue Recognition

    1. From 1 January 2020 to 30 June 2020


    Revenue for 600 units sold in the period from 1 January 2020 to 30 June 2020 is recognized at the
    original contract price of $2,000 per unit.
    DR Accounts Receivable $1,200,000
    CR Revenue $1,200,000

    2. From 1 July 2020 to 30 September 2020


    Revenue for 500 units sold in the period from 1 July 2020 to 30 September 2020 is recognized at the
    original contract price of $2,000 per unit.
    DR Accounts Receivable $1,000,000
    CR Revenue $1,000,000
    3. From 1 October 2020 to 30 November 2020
    Revenue for the additional 700 units is recognized at the discounted price of $1,500 per unit.
    DR Accounts Receivable $1,050,000 [700 units x $1,500]
    CR Revenue $1,050,000

    4. On 1 December 2020
    Revenue for the additional 200 units is recognized at the discounted price of $1,500 per unit.
    DR Accounts Receivable $300,000 [200 units x $1,500]
    CR Revenue $300,000

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