Deck 15: Revenue

Question 1

Natural Designs sells furniture on 12 months' interest free terms to qualifying customers. On 30 June 2022, Natural Designs sells $20 000 of furniture to T. Bailey, payable by 30 June 2023. The appropriate interest rate for this transaction is determined to be 6% per annum. The present value of the $20 000 to be received in one year's time is $18 868. The journal entry to be recorded by Natural Designs at 30 June 2022 is:

A) DR Bank $20 000; CR Receivable $20 000.
B) DR Receivable $20 000; CR Sales revenue $20 000.
C) DR Receivable $20 000; CR Sales revenue $18 868; CR Interest revenue $1 132.
D) DR Receivable $20 000; CR Sales revenue $18 868; CR Deferred interest $1 132.

Answer 1

D

Question 2

Which of the following is not an example of an entity retaining significant risks and rewards of ownership?

A) The entity retains an obligation for unsatisfactory performance not covered by normal warranty provisions.
B) The goods are shipped subject to installation, and the installation is a significant part of the contract that has not yet been completed by the entity.
C) The buyer has the right to rescind the purchase for a reason specified in the sales contract. The entity is confident that this option will not be exercised.
D) The receipt of revenue from a sale is contingent on the buyer reselling the goods.

Answer 2

C

Question 3

Which of the following is not a condition that needs to be satisfied prior to recognising revenue from the rendering of services using the 'percentage of completion' method?

A) The contract is non-cancellable.
B) The amount of revenue can be measured reliably.
C) The stage of completion of the transaction can be measured reliably.
D) The costs of the transaction (including future costs) can be measured reliably.

Answer 3

A

Question 4

The Conceptual Framework refers to two elements of performance. They are:

A) liabilities and equity.
B) revenue and expenses.
C) expenses and income.
D) assets and liabilities.

Question 5

Which of the following are included in the scope of AASB 15/IFRS 15 Revenue from Contracts with Customers?
I. Insurance contracts.
II. Subscriptions.
III. Accounting for investments in associates.
IV. Accounting for share of joint venture revenue.

A) II only.
B) II and IV only.
C) I and IV only.
D) II and III only.

Question 6

The two categories of income, as specified in the Conceptual Framework, are:

A) income and revenue.
B) income and gains.
C) revenue and gains.
D) revenue and profits.

Question 7

Which of the following is not a condition to be satisfied when recognising revenue from the sale of goods or services?

A) The seller retains control over the goods.
B) Reliable measurement of the transaction costs.
C) The probability of future economic benefits flowing to the seller.
D) Transfer of the significant risks and rewards of ownership of the goods from the seller to the buyer.

Question 8

Abbott Ltd sells goods to Costello Ltd and issues an invoice on 10 August. On that date, Costello Ltd requests that Abbott Ltd delay delivery of the goods until the 25 August when they expect to have finished preparing their site for the goods. The goods can then be delivered on 26 August. Costello Ltd pays for the goods on 12 August and accepts full responsibility for the goods from this payment date. Assuming all other revenue recognition criteria are met, on which date can Abbott Ltd recognise revenue for the sale of these goods?

A) 25 August.
B) 10 August.
C) 12 August.
D) 26 August.

Question 9

Wiseman Ltd is offering the following conditions to customers who purchase goods with a minimum total of $5 000 in the one transaction:
-Initial deposit of 25% of purchase price.
-Immediate delivery of goods purchased.
-Interest rate of 10% p.a. charged on the outstanding balance.
-Repayment of the balance (including the interest) over 36 equal monthly instalments.
-Wiseman Ltd retains legal title to the goods until the final monthly payment has been made.
Wiseman Ltd would recognise revenue as follows:

A) recognise the whole amount of revenue at purchase date.
B) recognise all revenue as it is received
C) recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods at purchase date.
D) recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods once the final payment has been received.

Question 10

Which of the following are excluded from the scope of AASB 15/IFRS 15?
I. Financial instruments within the scope of AASB 9/IFRS 9.
II. Insurance contracts within the scope of AASB 4/IFRS 4.
III. Arrangements between oil companies that agree to exchange oil to meet demands of customers in different locations.
IV. Lease agreements within the scope of AASB 16/IFRS 16.

A) I, II only.
B) II, III and IV only.
C) I, III and IV only.
D) I, II, III and IV.

Question 11

Which of the following statements relating to the identification of the performance obligation is incorrect?

A) The good or service to be transferred to the customer is non-distinct.
B) The entity promises to transfer a distinct, or a series of distinct, goods or services to the customer.
C) The customer can benefit from the good or service on its own or in conjunction with other readily available resources.
D) The entity's promise to transfer the good or service to the customer is separately identifiable in the contract.

Question 12

Which of the following is not a step in the recognition of revenue?

A) Recognise revenue when the entity satisfies a performance obligation.
B) Allocate the buying price to the goods or services.
C) Identify the performance obligation.
D) Determine the transaction price.

Question 13

In a principal/agent relationship for contracts with customers, the pre-determined fee or commission for services is earned by the:

A) owner.
B) agent.
C) principal.
D) customer.

Question 14

Which of the following is not an example of an agency arrangement where the selling entity would recognise revenue on a net basis?

A) A retailer selling goods to a customer for $88 and remitting $8 GST to the government.
B) A travel agent selling a cruise ticket to a customer, charging the customer $2 000 and remitting $1 800 to the cruise liner company.
C) A licensed hotel selling keno tickets to customers for $5.00 and remitting $4.50 per ticket to the state gaming authority.
D) A distributor receiving stock from its supplier on a sale-or-return basis. The sales price per unit is $100 and the cost per unit is $60.

Question 15

The first step in the recognition of revenue is:

A) determine the transaction price.
B) identify the performance obligation in the contract.
C) identify the contract or contracts with the customer.
D) allocate the transaction price to the performance obligation.

Question 16

When allocating the transaction price for a contract with a customer, the 'expected cost plus a margin approach' requires the entity to:

A) evaluate the market in which it purchases goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.
B) forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service.
C) allocate the price for the goods or services on an 'in-combination' basis.
D) evaluate the market in which it sells goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.

Question 17

The key issue with connection fees received for connecting a customer to a telecommunications network is:

A) whether they were provided by the principal or an agent.
B) whether the provision of the handset is a separate transaction.
C) whether the distribution channels used by the telecommunications companies are acting as agents or acting in their own rights as principals.
D) whether the revenue is recognised in full upfront or over an actual or implied service period.

Question 18

Which of the following are part of the criteria that must be met when accounting for a contract with a customer?
I. Commercial substance.
II. Approval of contract by all parties.
III. Identification of the payment terms for the goods/services.
IV. The collection of the consideration from the customer is remote.

A) I, III and IV.
B) II and III only.
C) I, II and IV.
D) I, II and III.

Question 19

"The amount of consideration to which the entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties" is the definition of:

A) the contract.
B) the consideration.
C) the performance obligation.
D) the transaction price.

Question 20

Lily Ltd sells and delivers goods to Rose Ltd on 13 March. Both parties agree that Rose Ltd will hold the goods on consignment to be sold to third parties. Rose Ltd is not required to pay Lily Ltd for the goods until they are sold to a third party. Which of the following statements is incorrect?

A) Lily Ltd does not recognise any revenue until Rose Ltd has on-sold goods to a third party.
B) Lily Ltd retains the risks and rewards of ownership of the goods after delivery to Rose Ltd.
C) Lily Ltd recognises revenue on 13 March for the sale of goods to Rose Ltd.
D) At the time of delivery of the goods to Rose Ltd there is no probability that future economic benefits will flow to Lily Ltd.

Question 21

TopTel Co provides a bundled-service package to J. Willis for $2000 upfront. The service package includes:
-upfront advice
-'on-call' advice
-database access for a 1-year period.
If each service was sold separately to J. Willis the fees would be:
-Up-front advice: $400
-On-call advice : $1800
-Database access: $600
The revenue that would be recorded by TopTel Co at the commencement of the agreement is (rounded to the nearest whole dollar):

A) $2000.
B) $1000.
C) $714.
D) $286.

Question 22

What impact did the introduction of IFRIC 13 Customer Loyalty Programmes have on revenue recognition policies for entities in the airline industry?

A) No impact.
B) Changed the timing of the recognition of revenue.
C) Reduced the amount of revenue able to be recognised.
D) Increased the amount of revenue able to be recognised.

Question 23

Which of the following disclosures are required under AASB 15/IFRS15?
I. The accounting policies adopted for revenue recognition.
II. Total income, allocated between revenue and other gains.
III. The amount of revenue arising from exchanges of goods and services.
IV. The amount of each significant category of revenue recognised during the period.

A) I and II only.
B) I, II and III only.
C) I, III and IV only
D) I, II, III and IV.

Question 24

Which of the following statements is correct in terms of revenue-related disclosures on the face of the statement of profit or loss and other comprehensive income?

A) AASB 101/IAS 1 Presentation of Financial Statements requires total revenue to be disclosed on the face of the statement of profit or loss and other comprehensive income.
B) AASB 15/IFRS 15 Revenue from Contracts with Customers requires total revenue to be disclosed on the face of the statement of profit or loss and other comprehensive income.
C) AASB 101/IAS 1 Presentation of Financial Statements requires revenue by category to be disclosed on the face of the statement of profit or loss and other comprehensive income.
D) AASB 15/IFRS 15 Revenue from Contracts with Customers requires revenue by category to be disclosed on the face of the statement of profit or loss and other comprehensive income.

Question 25

Angel Limited develops and sells off-the-shelf accounting software packages. The retail price of each package is $550 (GST inclusive). Included with each package sold are 'free' upgrades for a period of 12 months from the date of sale. These upgrades can be purchased separately for $66 (GST inclusive). At the date of sale, Angel should record revenue of:

A) $440.00.
B) $484.00.
C) $550.00.
D) $616.00.

Question 26

TopTel Co provides a bundled-service package to J. Willis for $2000 upfront. The service package includes:
-upfront advice
-'on-call' advice
-database access for a 1-year period.
If each service was sold separately to J. Willis the fees would be:
-Up-front advice: $400
-On-call advice : $1800
-Database access: $600
Using the relative fair value approach, the amount of revenue recognised in relation to the database access is (rounded to the nearest whole dollar):

A) $286.
B) $429.
C) $1286.
D) indeterminable based on the facts provided.