IFRS 15 – SOLUTIONS (1)

SOLUTION TO QUESTION NO. 1

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (2)

SOLUTION TO QUESTION NO. 2

SOLUTION TO QUESTION NO. 3

(a) Allocation of transaction price
(i)
Standalone Allocation of Allocation of
Product price Rs. 70,000 to E-2 and E-3 Rs. 90,000 to all
------------------------------ Rs. ---------------------------------
E-1 30,000 30,000 27,000
[90,000 x 30/100]
E-2 30,000 26,250 23,625
[70,000 x 30/80] [90,000 x 26.25/100]
E-3 50,000 43,750 39,375
[70,000 x 50/80] [90,000 x 43.75/100]
110,000 100,000 90,000
(ii)
Standalone Allocation of
Product price Rs. 104,000
--------------- Rs. -------------
E-1 30,000 24,000
[104,000 x 30/130]
E-3 100,000 80,000
[50,000 x 2] [104,000 x 100/130]
130,000 104,000

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (3)

(c) Transaction price

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

Factors affecting determination of the transaction price:

(i) Variable consideration
(ii) Constraints on variable consideration
(iii) Existence of a significant financing components (time value of money)
(iv) Non-cash consideration
(v) Consideration payable to a customer

SOLUTION TO QUESTION NO. 4

Trich Mir Limited
Correcting entries for the year ended 31 December 2019
S.No. Description Debit Credit
---- Rs. in million ----
(i) Revenues 25–20.66{25×(1.1)–2} 4.34
Receivable 4.34

Receivable 20.66×10%×(3÷12) 0.52

Interest income 0.52

Commission expense 1.60

Amortization expense 1.6÷2×3÷12 0.20
Contract cost 1.40

(ii) Cost of goods sold 15.00

Inventories 15.00

Receivable (30×60%)–11 7.00

Construction revenues 7.00

(iii) Revenues 12–12×16÷(12+8) 2.40

Receivable 2.40

Contract asset (12–2.4) 9.60

Receivable 9.60

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (4)

SOLUTION TO QUESTION NO. 5

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (5)

SOLUTION TO QUESTION NO. 6

(a)
The general IFRS 15 model applies only when all of the following conditions are met:
▪ the parties to the contract have approved the contract.
▪ the entity can identify each party’s rights.
▪ the entity can identify the payment terms for the goods and services to be transferred.
▪ the contract has commercial substance.
▪ it is probable that the entity will collect the consideration.
(b)
(i) The contract contains two distinct performance obligations i.e. selling the machine and providing the maintenance
services as:
• the customer can separately benefit from the machine without the maintenance services from GW (or GW
sells maintenance services separately) and
• the machine and maintenance services are separately identifiable in the contract.
Thus GW will allocate the transaction price between the two performance obligations as follows:
Standalone price (Rs.) Proportion Transaction price (Rs.)
Machine 1,700,000 85% 1,530,000
Maintenance 300,000 15% 270,000
(Rs. 25,000 x 12) (Rs. 22,500 x 12)
2,000,000 100% 1,800,000
Revenue related to sale of machine would be recognized at a point in time i.e. upon delivery on 1 August 2018.
While revenue related to maintenance service would be recognized over time i.e. as the services are rendered. Till
31 December 2018, revenue would be recognized in respect of:
• Sale of machine Rs. 1,530,000
• Maintenance service Rs. 112,500 (i.e Rs. 22,500 for 5 months)
Remaining amount of Rs. 157,500 would appear in liabilities as deferred revenue.
(ii) The contract contains two distinct performance obligations i.e. selling the machine and providing the maintenance
services.
The contract includes a significant financing component in respect of sale of machine which is evident from the
difference between the amount of promised consideration of Rs. 1.95 million and the cash selling price of Rs. 1.7
million.
Revenue related to machine would be recognized upon delivery on 1 October 2018. Revenue related to
maintenance service would be recognized as the services are rendered each month. It is assumed that effective
rate of interest between promised consideration and cash selling price would reflect the borrowing rate in separate
financing transaction. Therefore, interest income would be recognized over two years using 7.1% [i.e. (1.95÷1.7) ½ –1].
Till 31 December 2018, revenue would be recognized in respect of:
▪ Sale of machine Rs. 1,700,000
▪ Maintenance service Rs. 75,000 i.e Rs. 25,000 for 3 months
▪ Interest revenue Rs. 30,175 (Rs. 1.7 million × 7.1% × 3/12)

SOLUTION TO QUESTION NO. 7

(a)
Step – 1: Identify the contract(s) with customers;
Step – 2: Identify the separate performance obligations
Step – 3: Determine the transaction price
Step – 4: Allocate the transaction price;
Step – 5: Recognition of revenue when an entity satisfies performance obligations.
(b)
(i)
Dr. Cr.
Rs. Rs.
1/6/18 Cash [500 x Rs. 200] 100,000
Sales [100,000 x 95%] 95,000
Refund liability [100,000 x 5%] 5,000
(To record sale of 500 units with 5% refund liability)

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (6)

1/6/18 Cost of sale 71,250

Asset for right to recover products [75,000 x 5%] 3,750
Inventory [500 x Rs. 150] 75,000
(To record cost of sale and expected return)

30/6/18 Refund liability 5,000

Cash [Rs. 200 x 20] 4,000
Sales [Rs. 200 x 5] 1,000
(To record refund of units returned and sales)

30/6/18 Cost of sales [5 x Rs. 150] 750

Inventory [20 x Rs. 150] 3,000
Asset for right to recover products 3,750
(To record return of units and cost of sale)
(ii) Dr. Cr.
Rs. Rs.
1/6/18 Cash [500 x Rs. 200] 100,000
Refund liability 100,000
(To record upfront cash received for goods delivered)

1/6/18 Asset for right to recover products 75,000

Inventory [500 x Rs. 150] 75,000
(To record asset for right to recover products)

30/6/18 Refund liability 100,000

Cash [Rs. 200 x 20] 4,000
Sales [Rs. 200 x 480] 96,000
(To record refund of units returned and sales)

30/6/18 Cost of sales [480 x Rs. 150] 72,000

Inventory [20 x Rs. 150] 3,000
Asset for right to recover products 75,000
(To record cost of sale 7 return of units and cost of sale)

SOLUTION TO QUESTION NO. 8

(a) Performance obligation:
A performance obligation is a promise in a contract with a customer to transfer to the customer either:
• a good or service (or a bundle of goods or services) that is distinct; or
• a series of distinct goods or services that are substantially the same and that have the same pattern of
transfer to the customer.

Examples of promised goods and services

(i) Goods produced by an entity for sale
(ii) Resale of goods purchased by an entity
(iii) Resale of rights to goods or services purchased by an entity
(iv) Performing a contractually agreed-upon task for a customer
(v) Standing ready to provide goods or services
(vi) Providing a service of arranging for another party to transfer goods or services to the customer
(vii) Granting rights to goods or services to be provided in the future that a customer can resell
(viii) Constructing, manufacturing or developing an asset on behalf of a customer
(ix) Granting licences
(x) Granting options to purchase additional goods/services

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (7)

(b)
Dr. Cr.
----- Rs. -----
31-12-17 Advance from customer 378,000
Revenue - mobile [15,750 (W-1) x 20] 315,000
Revenue - network usage [18,900 (W-1) x 20 x 2/12] 63,000
[To record revenue at year end]

W -1 Allocation of transaction price

Standalone prices: Rs.

Smart phone 18,000
Network usage for 1 year [1,800 x 12] 21,600
39,600
Allocation of transaction price:
Smart phone (34,650 x 18,000/39,600) 15,750
Net work usage (34,650 x 21,600/39,600) 18,900
34,650

SOLUTION TO QUESTION NO. 9

(a)
Journal entries - Option 1 (Lump sum payment)
Debit Credit
Date Description
Rs. Rs.
01-Jan-17 Cash 200,000
Contract liability 200,000
[Cash received]
31-Dec-17 Interest expense (W-2) 13,192
Contract liability (200,000 x 6.596%) 13,192
[Interest expense for 2017]
31-Dec-17 Contract liability (W-1) 110,000
Maintenance service revenue 110,000
[Revenue for 2017]
31-Dec-18 Interest expense (W-2) 6,808
Contract liability 6,808
[Interest expense for 2017]
31-Dec-18 Contract liability 110,000
Maintenance service revenue 110,000
[Revenue for 2018]

W-1 Annual service revenue

200,000
= [1−(1+6.596%)−2] = 110,000
6.596%

W-2 Revenue Interest Principal Balance

Date -------------------- Rs. ----------------------
200,000
31-Dec-17 110,000 13,192 96,808 103,192
31-Dec-18 110,000 6,808 103,192 -

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (8)

Journal entries - Option 2 (Payment at end of each year)

Debit Credit
Date Description
Rs. Rs.
31-Dec-17 Cash 110,000
Maintenance service revenue 110,000
[Cash received for 1st year service]
31-Dec-18 Cash 110,000
Maintenance service revenue 110,000
[Cash received for 2nd year service]

(b) Calculation of Selling price to be allocated to each product

Rs.
Standalone price of product C - 1 100,000
Adjusted Standalone prices of:
C - 2 [170,000/200 x 90] 76,500
C - 3 [170,000/200 x 110] 93,500
270,000
Allocation of transaction price:
C - 1 [260,000/270 x 100] 96,296
C - 2 [260,000/270 x 76.5] 73,667
C - 3 [260,000/270 x 93.5] 90,037
260,000
(c)
Indications of transfer of control include the following:
• The entity has a present right to payment for the asset
• The customer has legal title
• The customer has physical possession (except in case of bill and hold, consignment sales and repos)
• The customer has significant risks and rewards of ownership of the asset
• The customer has accepted the asset

SOLUTION TO QUESTION NO. 10

(a)
Performance obligation is a promise in a contract with a customer to transfer to the customer either:
• a good or service (or a bundle of goods or services) that is distinct; or
• a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the
customer.
A good or service is distinct if both of the following criteria are met:
• the customer can benefit from the good or service either on its own or together with other resources that are readily
available to the customer; and
• the entity’s promise to transfer the good or service is separately identifiable from other promises in the contract.
Following factors may be considered to ascertain this condition:
- Entity is not using the good or service as an input to produce the combined output specified by customer.
- The good or service does not significantly modify or customize another good or service in contract
- The good or service is not highly dependent on or interrelated with other goods or services in contract.
(b)
(i) The different services being performed under the contract are not separately identifiable from each other
because all these services are used as an input to produce the combined output specified by customer.
Therefore, there is a single performance obligation i.e. construction of residential project.
(ii) Transfer of software license, software updates and support services are distinct. However, the software license is
delivered before the other services and remains functional without updates and technical support. Further, the
customer can benefit from each of the services either on their own or together with other services that are
readily available. Thus, the entity’s promise to transfer the good or service is separately identifiable from other
promises in the contract. Based on this, the contract should not be accounted for as a single performance
obligation.

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (9)

SOLUTION TO QUESTION NO. 11

The transaction price should include management’s estimate of the amount of consideration to which the entity will be
entitled for the work performed.
Probability weighted average consideration
Rs. million
Contract price 20.00
Bonus:
[2m x 0.6] 1.20
[2m x 90% x 0.3] 0.54
[2m x 80% x 0.1] 0.16
1.90
21.90
The total transaction price is Rs. 21.90 million based on the probability-weighted estimate. DC will update its estimate at
each reporting date.

SOLUTION TO QUESTION NO. 12

It is appropriate for UC to use the most likely amount method to estimate the variable consideration as there is a binary
condition for bonus. The contract’s transaction price is therefore Rs. 275 million [Rs. 250 million + Rs. 25 million] because
it is more likely that UC will receive the bonus. This estimate should be updated each reporting date.

SOLUTION TO QUESTION NO. 13

It is appropriate for NC to use the most likely amount method to estimate the variable consideration as there is a binary
condition for penalty. The contract’s transaction price is therefore Rs. 100 million (i.e. ignoring penalty of Rs 10 million)
because it is more likely that penalty will not be deducted. This estimate should be updated each reporting date.

SOLUTION TO QUESTION NO. 14

It is appropriate for AC to use the most likely amount method to estimate the variable consideration as there is a binary
condition for bonus. The contract’s transaction price is therefore Rs. 5.5 million [Rs. 5 million + Rs. 0.5 million] because it
is highly likely that AC will receive the bonus.

SOLUTION TO QUESTION NO. 15

Dr. Cr.
--------- Rs. --------
01-01-18 Cash [100 x Rs. 500] 50,000
Sales [92 x Rs. 500] 46,000
Refund liability [8 x Rs. 500] 4,000
[Cash received against sale]

01-01-18 Cost of sales [92 x Rs. 300] 27,600

Asset for right to recover product [8 x Rs. 300] 2,400
Inventory [100 x Rs. 300] 30,000
[Goods delivered to customers]

(a) Dr. Cr.

--------- Rs. --------
30-01-18 Refund liability 4,000
Sales 4,000
[Refund liability expires and revenue recognized]

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (10)

30-01-18 Cost of sales 2,400

Asset for right to recover product 2,400
[Cost of goods recognized]

(b)
30-01-18 Refund liability 4,000
Cash [5 x Rs. 500] 2,500
Sales [3 x Rs. 500] 1,500
[Refund made and remaining recognized as revenue]

30-01-18 Cost of sales [3 x Rs. 300] 900

Inventory [5 x Rs. 300] 1,500
Asset for right to recover product 2,400
[Goods returned and remained recognized as cost]

(c)
30-01-18 Refund liability 4,000
Sale return [2 x Rs. 500] 1,000
Cash [10 x Rs. 500] 5,000
[Refund actually made]

30-01-18 Inventory [10 x Rs. 300] 3,000

Cost of sales [2 x Rs. 300] 600
Asset for right to recover product 2,400
[Goods returned by customers]

SOLUTION TO QUESTION NO. 16

Dr. Cr.
--------- Rs. --------
Cash [130 x Rs. 5,000] 650,000
Sales [130 x Rs. 4,000] 520,000
Refund liability [130 x Rs. 1,000] 130,000
[Cash received against sale]

SOLUTION TO QUESTION NO. 17

Dr. Cr.
--------- Rs. --------
Cash [300 x Rs. 5,000] 1,500,000
Sales [300 x Rs. 3,500 – 130 x Rs. 500] 985,000
Refund liability (balancing) 515,000
[Cash received against sale]

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (11)

SOLUTION TO QUESTION NO. 18

Dr. Cr.
--------- Rs. --------
01-01-18 Receivable 785,124
Sales [W-1] 785,124
[Machine sold]

01-01-18 Cost of sales 400,000

Inventory 400,000
[Cost of machine recognized]

31-12-18 Receivable 78,512

Interest income [785,124 x 10%] 78,512
[Interest income for 2018]

31-12-19 Receivable 86,364

Interest income [785,124 x 1.1 x 10%] 86,364
[Interest income for 2019]

31-12-19 Cash 950,000

Receivable 950,000
[Cash received]

W-1
950,000
Present value of sale price = = Rs. 785,124
(1+10%)2

SOLUTION TO QUESTION NO. 19

(a) Option I Dr. Cr.
--------- Rs. --------
01-01-18 Cash 800,000
Contract liability 800,000
[100% advance received]

31-12-18 Interest expense [800,000 x 9%] 72,000

Contract liability 72,000
[Interest expense for 2018]

31-12-19 Interest expense [800,000 x 1.09 x 9%] 78,480

Contract liability 78,480
[Interest expense for 2019]

31-12-19 Contract liability 950,480

Sales 950,480
[Equipment delivered and sale recognized]
(b) Option II
31-12-19 Cash 1,000,000
Sales 1,000,000
[Equipment delivered and sale recognized]

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (12)

SOLUTION TO QUESTION NO. 20

Product A Rs.
Up-front price 37,500
Year 1 Interest expense [37,500 x 6%] 2,250
39,750
Year 2 Interest expense [39,750 x 6%] 2,385
Year 2 Revenue for Product A 42,135

Product B
Up-front price 112,500
Year 1 Interest expense [112,500 x 6%] 6,750
119,250
Year 2 Interest expense [119,250 x 6%] 7,155
126,405
Year 3 Interest expense [126,405 x 6%] 7,584
133,989
Year 4 Interest expense [133,989 x 6%] 8,039
142,029
Year 5 Interest expense [142,029 x 6%] 8,522
Year 5 Revenue for Product B 150,550

SOLUTION TO QUESTION NO. 21

Dr. Cr.
--------- Rs. --------
01-01-18 Receivable 96,073
Sales [W-1] 96,073
[Equipment sold and revenue recognized]

01-01-18 Cost of sales 60,000

Inventory 60,000
[Cost of equipment recognized]

31-12-18 Cash 40,000

Receivable [W-2] 28,471
Interest income [W-2] 11,529
[1st installment received]

31-12-19 Cash 40,000

Receivable [W-2] 31,888
Interest income [W-2] 8,112
[2nd installment received]

31-12-20 Cash 40,000

Receivable [W-2] 35,714
Interest income [W-2] 4,286
[3rd installment received]

W-1
[1−(1+12%)−3 ]
Present value of installments = 40,000 x
12%

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (13)

W-2
Installment Interest Principal Balance
Date -------------------- Rs. ----------------------
96,073
31-Dec-18 40,000 11,529 28,471 67,602
31-Dec-19 40,000 8,112 31,888 35,714
31-Dec-20 40,000 4,286 35,714 0

SOLUTION TO QUESTION NO. 22

Dr. Cr.
--------- Rs. --------
01-01-18 Cash 300,000
Contract liability 300,000
[100% upfront fees received]

31-12-18 Interest expense [W-2] 36,000

Contract liability 36,000
[Interest expense for 2018]

31-12-18 Contract liability 124,905

Maintenance service income [W-1] 124,905
[Revenue recognized for maintenance service]

31-12-19 Interest expense [W-2] 25,331

Contract liability 25,331
[Interest expense for 2019]

31-12-19 Contract liability 124,905

Maintenance service income [W-1] 124,905
[Revenue recognized for maintenance service]

31-12-20 Interest expense [W-2] 13,383

Contract liability 13,383
[Interest expense for 2020]

31-12-20 Contract liability 124,905

Maintenance service income [W-1] 124,905
[Revenue recognized for maintenance service]

W-1 Annual service revenue

300,000
= [1−(1+12%)−3] = 124,905
12%

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (14)

W-2
Revenue Interest Principal Balance
Date -------------------- Rs. ----------------------
300,000
31-Dec-18 124,905 36,000 88,905 211,095
31-Dec-19 124,905 25,331 99,573 111,522
31-Dec-20 124,905 13,383 111,522 0

SOLUTION TO QUESTION NO. 23

Manufacture Co should include the fair value of the materials in the transaction price because it obtains control of them.
The transaction price of the arrangement is therefore Rs. 1.5 million.

SOLUTION TO QUESTION NO. 24

The payment made to the customer is not in exchange for a distinct good or service. Therefore, the Rs. 1m paid to the
customer must be treated as a reduction in the transaction price. The total transaction price is essentially being reduced
by 5% (Rs. 1m/ Rs. 20m). Therefore, Golden Gate reduces the price allocated to each good by 5% as it is transferred. By 31
December 2018, Golden Gate should have recognised revenue of Rs. 3.8m (Rs. 4m × 95%).

SOLUTION TO QUESTION NO. 25

Mobile Co should account for the payment to Retailer consistent with other purchases of advertising services. The
payment from Mobile Co to Retailer is consideration for a distinct service provided by Retailer and reflects fair value. The
advertising is distinct because Mobile Co could have engaged a third party who is not its customer to perform similar
services. The transaction price for the sale of the phones is Rs. 100,000 and is not affected by the payment made by
Retailer.

SOLUTION TO QUESTION NO. 26

Rs.
Stand-alone prices
Boat 300,000
Anchorage 50,000
350,000
Transaction price 325,000

Allocation of price:
Boat [325 x 300/350] 278,571
Anchorage [325 x 50/350] 46,429
325,000

SOLUTION TO QUESTION NO. 27

Rs.
Stand-alone prices
Boiler 360,000
Services [50,000 x 1.2] 60,000
420,000

Transaction price 400,000

Allocation of price:
Boiler [400 x 360/420] 342,857
Services [400 x 60/420] 57,143
400,000

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (15)

SOLUTION TO QUESTION NO. 28

Seller can use the residual approach to estimate the standalone selling price of Product C because Seller has not
previously sold or established a price for Product C. Seller has observable evidence that Products A and B sell for Rs.
25,000 and Rs. 45,000, respectively, for a total of Rs. 70,000. The residual approach results in an estimated standalone
selling price of Rs. 30,000 for Product C (Rs. 100,000 total transaction price less Rs. 70,000).

SOLUTION TO QUESTION NO. 29

Rs.
Adjusted Standalone prices of:

A [250 x 120/260] 115,385

B [250 x 140/260] 134,615
250,000

Revised stand-alone prices

A 115,385
B 134,615
C 130,000
D 150,000
530,000

Transaction price 500,000

Allocation of price

A [500 x 115.385/530] 108,853

B [500 x 134.615/530] 126,996
C [500 x 130/530] 122,642
D [500 x 150/530] 141,509
500,000

SOLUTION TO QUESTION NO. 30

The only costs that qualify as incremental costs of obtaining a contract are the commissions paid to the sales agents. The
commissions are costs to obtain a contract that Telecom would not have incurred if it had not obtained the contracts.
Telecom should record an asset for the costs, assuming they are recoverable.
All other costs are expensed as incurred. The sales agents’ salaries and the advertising expenses are expenses Telecom
would have incurred whether or not it obtained the customer contracts.

SOLUTION TO QUESTION NO. 31

TechCo should recognize the set-up costs incurred at the outset of the contract as an asset since they (1) relate directly to
the contract, (2) enhance the resources of the company to perform under the contract, and relate to future performance,
and (3) are expected to be recovered.
An asset is recognized and amortized on a systematic basis consistent with the pattern of transfer of the tracking and
monitoring services to the customer.

SOLUTION TO QUESTION NO 32
(a) For recognition of revenue five step model is followed:
- Identifying the contract: There is a contract duly identified as both parties agree to rights of each party
and payments terms. Collection is also probable as STML is regular customer.
- Identifying performance obligation: Performance obligation is the transfer of machine to customer.
- Determination of transaction price: The transaction price is the cash equivalent price net of trade
discount i.e. Rs. 4 million. [Assuming it is equal to present value of cash flow at financing rate]

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (16)

- Allocation of transaction price: Since there is single performance obligation, entire price is attributable
to transfer of machine.
- Revenue recognition: Revenue of Rs. 4 million should be recognized when performance obligation is
satisfied on transfer of control to customer over machine. The excess amount of Rs. 1.6 million is
recognized as interest income over three years.
(b) For recognition of revenue five step model is followed:
- Identifying the contract: There is a contract duly identified as both parties agree to rights of each party
and payments terms. Collection is probable as FE is highly reputed multinational.
- Identifying performance obligation: Performance obligation is the re-plastering of 10 buildings.
- Determination of transaction price: The transaction price is the agreed contract price of Rs. 22 million.
- Allocation of transaction price: Since there is single performance obligation, entire price is attributable
to re-plastering.
- Revenue recognition: Performance obligation will be satisfied on transfer of control. Performance
obligation will be satisfied over time. Therefore revenue should be recognized over the period by
measuring the progress towards complete satisfaction of obligation. Various methods are used to
measure progress. Based on information given, cost incurred may be used as basis as well as units
completed basis may be used for progress measurement.

SOLUTION TO QUESTION NO 33
Application of the five-step process to TeleSouth
(i) Identify the contract with a customer. This is clear. TeleSouth has a twelve-month contract with Angelo.
(ii) Identify the separate performance obligations in the contract. In this case there are two distinct performance
obligations:
(1) The obligation to deliver a handset
(2) The obligation to provide network services for twelve months (The obligation to deliver a handset would
not be a distinct performance obligation if the handset could not be sold separately, but it is in this case
because the handsets are sold separately.)
(iii) Determine the transaction price. The transaction price is straightforward i.e. Rs. 2,400 [12 x Rs. 200]
(iv) Allocate the transaction price to the separate performance obligations in the contract. The transaction price is
allocated to each separate performance obligation in proportion to the standalone selling price at contract
inception of each performance obligation, that is the stand-alone price of the handset (Rs. 500 and the stand-
alone price of the network services (Rs. 175 × 12 = Rs. 2,100)

Rs.
Stand-alone prices
Handset 500
Services 2,100
2,600

Transaction price 2,400

Allocation of price:
Handset [2,400 x 500/2,600] 462
Services [2,400 x 2,100/2,600] 1,938
2,400

(v) Recognise revenue when (or as) the entity satisfies a performance obligation, that is when the entity transfers
a promised good or service to a customer. This applies to each of the performance obligations:
(1) When TeleSouth gives a handset to Angelo, it needs to recognize the revenue of Rs. 462.
(2) When TeleSouth provides network services to Angelo, it needs to recognize the total revenue of Rs.
1,938. It would be reasonable to recognized service revenue on monthly basis.

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (17)

Journal entries
Dr. Cr.
--------- Rs. --------
01-01-18 Receivable 462
Revenue 462
[Revenue from sale of handset recognized]

31-01-18 Cash 200

Revenue (1,938/12) 162
Receivable (462/12) 38
[Monthly bill received and service revenue recognized]

SOLUTION TO QUESTION NO. 34

Extracts – SOCI Rs. million
Revenue [500 x 80/400] 100
Costs 80

Extracts – SOFP
Current assets
Contract asset [100 – 75] 25
Receivable 75

SOLUTION TO QUESTION NO. 35

Journal entries Dr. Cr.
------- Rs. million -------
01-01-21 PPE 320.00
Cash 320.00
[Purchase of plant]

31-12-21 Contract cost WIP 101.00

Accumulated dep - Plant [320 ÷ 20] 16.00
Cash 85.00
[Construction costs incurred]

31-12-21 Contract asset [154 - 120] 34.00

Receivable 120.00 -
Construction revenue [700 x 22%] 154.00
[Revenue for the year recognized]

31-12-21 Cost of sales (W-1) 97.46

Contract asset WIP 97.46
[Cost of sales for the year recognized]

Extracts - SOCI
Rs. million
Revenue 154.00
Contract cost amortized 97.46

Nasir Abbas FCA

 IFRS 15 – SOLUTIONS (18)

Extracts - SOFP
Non-current assets
PPE [320 - 16] 304.00

Current assets
Contract cost WIP (W-2) 3.54
Receivable 120.00
Contract asset 34.00

WORKINGS
W-1 Rs. million
Total estimated contract cost:
- Incurred to date (excluding dep) 85.00
- to be incurred (excluding dep) 310.00
- Plant dep [320 x 3/20] 48.00
443.00
Amortized [443 x 22%] 97.46

W-2
Cost incurred to date 101.00
Amortized (W-1) (97.46)
c/d balance 3.54

Nasir Abbas FCA