CertIFR-M3

1. AB Co has recently entered into a contract with a customer to provide a licence to use a standard software package.  After considering other available service providers, the customer has also engaged AB Co (as part of the same contract) to install the software on the customer's computers and provide technical support for three years.

How many performance obligations are there in the contract?
A.
B.
C.
D.

Question 1 of 12

2. Should the going concern assumption be dropped when part of a reporting entity is suffering financial difficulty?

Before you read our model answer, think about your own answer and consider whether you have included the following points. Select the points you included and see how you did.
A.
B.
C.
D.

Question 2 of 12

3.
A global telecommunications company sells mobile phones bundled with access to its network services.

A customer may, for example, contract to pay $70 per month for 24 months. In return, they receive a mobile handset at the start of the contract and access to unlimited calls, texts and data for the 24-month contract period.  Customers can buy the company's packages on various third-party websites and in-store at third-party outlets.

The company pays the third-party suppliers commission on all sales.

In applying IFRS 15, the company must:
  1. identify two performance obligations in the contract (provision of a handset and provision of network services)

  2. Allocate the total transaction price of $1,680 between these performance obligations based on their standalone selling prices
  3.  recognise revenue related to the handset at the start of the contract when it is provided to the customer
  4. recognise revenue related to the network services over the 24 month period
  5. recognise commission payable to third-party sellers as a contract cost asset and amortise it over the contract period.
This contrasts with the previous accounting treatment in which revenue was recognised in line with contract receipts (i.e. at $90 per month) and commission payable was recognised as an expense at the start of the contract (along with the cost of providing the handset).

As a result of the transition to IFRS 15, the company recognised a prior year adjustment being a credit to retained earnings.

This represented:

  1. 1
    revenue relating to handsets provided as part of contracts that had already commenced at the transition date

  2. 2
    the reversal of commission expenses previously recognised in order to recognise them as an asset.

Question 3 of 12

4. Does IAS 1 require the consistent use of accounting policies from year to year?

Before you read our model answer, think about your own answer and consider whether you have included the following points. Select the points you included and see how you did.
A.
B.

Question 4 of 12

5. EF Co provides a wireless router and 12 months’ superfast broadband package to a customer for $220 payable in advance. A customer buying the router separately would pay $30 and a customer buying the broadband package separately would pay $20 per month.

How much of the transaction price is allocated to the performance obligation to provide the router?
A.
B.

Question 5 of 12

6. Which of the following line items could be included in a statement of profit or loss and other comprehensive income prepared using the ‘nature of expense’ method?
A.
B.
C.

Question 6 of 12

7. EF Co provides a wireless router and 12 months' superfast broadband package to a customer for $220 payable in advance. A customer buying the router separately would pay $30 and a customer buying the broadband package separately would pay $20 per month.

When is the transaction price allocated to the broadband package recognised?
A.
B.
C.
D.

Question 7 of 12

8. CD Co has contracted to build a property for a customer for an agreed fee of $10 million. If the construction is completed by a certain date, a bonus of $2 million becomes payable by the customer to CD Co. There is a 75% chance of the construction being completed by the specified date.

What is the transaction price?
A.
B.
C.

Question 8 of 12

9. Can a bank loan with a maturity date of four months be a non-current liability?

Before you read our model answer, think about your own answer and consider whether you have included the following points. Select the points you included and see how you did.
A.
B.

Question 9 of 12

10. Which of the following does IAS 1 not require to be disclosed in the Statement of Changes in Equity (SOCIE)?
A.
B.
C.
D.

Question 10 of 12

11. Which line item must be disclosed separately on the face of the Statement of Financial Position (SOFP)?
A.
B.
C.
D.

Question 11 of 12

12. During the year to 30 September 20X8, the following events occurred in relation to Pipe Co. All were material to the company’s financial statements:
  • A claim for tax relief, submitted in 20X5, was rejected by the tax authorities. No appeal will be made. The resulting liability of $15,000 was not provided for at 30 September 20X7, since when the 20X7 financial statements had been authorised for issue. The company had expected the claim to succeed.
  • A cut-off error in respect of inventory was discovered, which would have reduced the carrying amount of inventory by $24,000 on 30 September 20X7.
  • Obsolete inventory was written down to its estimated net realisable value of $17,000 on 30 September 20X7. Due to further falls in the selling price of the inventory after 30 September 20X7 the inventory was subsequently sold for $7,000 after the financial statements were authorised for issue.
The retained earnings on 30 September 20X7, as reported in the 20X7 financial statements was $530,000. What is the restated retained earnings balance on 30 September 20X7 as reported in the 20X8 financial statements?
A.
B.
C.
D.

Question 12 of 12


 

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