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assume the same facts as in BE-5-23. how much revenue will Saar recognize in 2018 under this arrangement if Saar report under IFRS

Saar Associates, which Saar advertises on an ongoing basis. How much revenue will Saar recognize in 2018 under this arrangeme


this solution in the app 2 Bookmarks Show all steps: Chapter 5, Problem 22BE ON Problem Saar Associates sells two licenses to
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Answer #1

Problem relates to revenue recognition in relates to “ License fees” . As per IFRS 15 , revenue recognized divided into two parts – 1) Right to use 2) right to access .

Saar associates sells two license to Kim & Company on Sept 1,2018. First in exchange for $100,000 , saar provides kim with a copy of its proprietary Investment management software , which saar does not anticipate updating and which Kim can use permanently .

In this case , License revenue recognised upfront and recognised revenue of $ 100,000 immediately .

In the other case , exchange for $90,000 , saar provides Kim with a three year right to market Kim’s financial advisory service under the name of Saar associates , which Saar advertise on a going basis.

In this case , revenue recognised should be done on over the period basis . Recognised revenue on time basis ( % of completion basis ) . Number of months – 36 month . period cover – Sept – Dec = 4 Months. Revenue recognised - $90,000*4/36 = $10,000

Total revenue recognised - $ 100,000+$10,000 = $ 110,000    

Topchop sells hairstyle franchise . To Chop receives $ 50000 from new franchise for providing initial training , equipment and furnishing that have standalone selling prices . Top Cjop should recognised revenue initial as per accrual base of accounting .

Also Top Chop receive $30,000 per year for use of the Top Chop name and for ongoing consulting service . Carlos became a Top Chop franchise on July 1 2018 and Aug 1, 2018 . So in this case , Top chop can recognjsed revenue on the basis 6 months period ( 1st July – Dec 2018) , so revenue recognised - $ 30,000/2 = $ 15000

Total revenue recognised - $ 50,000+$15000= $ 65000

Dowell fishing supply inc sold $ 50,000 of Dowell Rods in Dec 15,2018. to Bassadrome.

But in this case due to shipping backlog , Dowell held inventory in Dowell warehouse y=until Jan 12 , 2019 . So At year end 2018 , No revenue recognised in the books .

Above accounting treated as Inventory in Transit

Kerianne paints landscape and in late 2018 placed four painting with retail price of $ 250 per painting . Commission paid 20% on painiting sold to gallery patrons. As on 31st Dec 2018, One painting sold so revenue recognised -$250 and commission amount – 25% of $ 250 =$50 – charge to Profit & loss account

Gift card issued , redeemable , lapse time period – How much revenue will recognise – This revenue recognised cover under “ Retail base accounting “

As per IFRS 15 – Recognised revenue when satisfy a performance obligation .As per IFRS 15 , Gift card are in other word customer unexercised rights that will be exercised in some future point .

Need to recognise the amount attributable to the unexercised as “ Contract Liability “

As and when redeem Gift card , convert contract Liability to revenue .

The above process is called “ breakage “ . recognise revenue in proportion to the pattern of rights exercised by the customer .

In certin case , revenue from breakage when the likelihood of the customer exercise its rights become remote . in case of gift card have some validity period , then company can recognised revenue from breakage or unused service after the period lapses.

In the above case – Gift card redeemed value – $ 840,000 + $30,000 ( remaining gift card has passed the date at which Good Buy concludes that card will never be redeemed ) , So total revenue recognised - $ 870,000

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