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*CA 18.9
(a) Widjaja Group should recognize revenue as it performs the work on the contract (the percentage-
of-completion method) because it meets the criteria for revenue recognition over time.
(b) Progress billings would be accounted for by increasing accounts receivable and increasing progress
(c) The income recognized in the second year of the four-year contract would be determined using
the cost-to-cost method of determining percentage of completion as follows:
1. The estimated total income from the contract would be determined by deducting the estimated
total costs of the contract (the actual costs to date plus the estimated costs to complete) from
the contract price.
(d) Earnings per share in the second year of the four-year contract would be higher using the
percentage-of-completion method instead of the cost-recovery method because income would be
recognized in the second year of the contract using the percentage-of-completion method,
FINANCIAL REPORTING PROBLEM
(a) 2016 Revenues: £10,555.4 million.
(c) M&S’s revenue comprises sales of goods to customers outside the
COMPARATIVE ANALYSIS CASE
(a) For the year 2015, adidas reported net sales of €16,915 million and
(b) Yes, revenue recognition policies are similar because both companies
(c) adidas segment revenues for the following geographic regions:
Geographical information (€ in millions)
Net sales (non-Group)
Year ending
Dec 31, 2015
Year ending
Dec 31, 2014
Western Europe
4,539
3,793
North America
2,753
2,217
COMPARATIVE ANALYSIS CASE (Continued)
Puma reported sales by region, as follows:
Region
External Sales
1-12/2015
€ million
EMEA
1,165.8
FINANCIAL STATEMENT ANALYSIS CASE
BRITISH AIRWAYS
(a) British Airways (BA) primarily provides services; it recognizes passen-
ger and cargo revenue when the transportation service is provided.
Specifically, passenger tickets (net of discounts) are recorded as
current liabilities (deferred revenue on ticket sales) until the flights
occur. Other revenue is recognized at the time the service is provided.
(b) BA’s methods are entirely consistent with acceptable IFRS for the
(c) In this disclosure, BA is describing its ticketing operation and the judg-
ments involved to estimate revenue to be recognized on unused
ACCOUNTING, ANALYSIS, AND PRINCIPLES
Accounting
Sales revenue ....................................................................... $9,500,000
* Since the sump-pump and installation bundle are delivered at the same
time, there are two performance obligations. Any discount is applied to
the pump/installation bundle. The total transaction price of $54,600 is
allocated between the equipment and installation ($43,800) and the
service contract ($10,800 [$10 X 36 X 30]).
Sales revenue ..................................................... $43,800
** [$7 X 36 X 30]
*** Sales revenue (200 X $1,200) ........................ $240,000
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
Analysis
Net income .................................................................................. $1,894,000
Depreciation expense ................................................................ 175,000
Free cash flow ............................................................................ $1,199,000
Principles
Under the 5-step model, a company first identifies the contract with
As indicated, a company satisfies its performance obligation when the
customer obtains control of the good or service. Companies satisfy
performance obligations either at a point in time or over a period of time.
Companies recognize revenue over a period of time if (1) the customer
controls the asset as it is created or the company does not have an
alternative use for the asset, and (2) the company has a right to payment.
Using control as a key element contributes to relevance because it
indicates the cash flows that the seller is entitled to as a result of the
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
Faithful representation may be sacrificed in situations companies must
allocate the transaction price to more than one performance obligation in a
contract. If an allocation is needed, the transaction price allocated to the
RESEARCH CASE
(a) Sale with a Right of Return is addressed at IFRS 15 para B20.
(b) According to IFRS 15 B20-B22 related to right of return:
In some contracts, an entity transfers control of a product to a
customer and also grants the customer the right to return the product
example, a customer may request an entity to enter into such a
contract because of the customer’s lack of available space for the
product or because of delays in the customer’s production schedules.
(c) According to IFRS 15, para B21:
To account for the transfer of products with a right of return (and for
RESEARCH CASE (Continued)
c. An asset (and corresponding adjustment to cost of sales) for its
right to recover products from customers on settling the refund
liability.
(d) According to IFRS 15, B80:
81 - An entity should determine when it has satisfied its performance
obligation to transfer a product by evaluating when a customer
obtains control of that product (see paragraph IFRS 15 para 35).
For some contracts, control is transferred either when the
product is delivered to the customer’s site or when the product is
In addition to applying the guidance in paragraph IFRS 15 para 35,
for a customer to have obtained control of a product in a bill-and-
hold arrangement, all of the following criteria must be met:
a. The reason for the bill-and-hold arrangement must be
substantive (for example, the customer has requested the
arrangement).
RESEARCH CASE (Continued)
82 - If an entity recognises revenue for the sale of a product on a bill-
and-hold basis, the entity should consider whether it has
