ACC$4122$ Corporate Accounting

Question $2(25$ marks$)$

Susie Interior Design Limited $("$Susie$")$ provides interior design, project management and maintenance services for small flats in Hong Kong. The company had just promoted a new "Art$-$Deco Package" with the following list prices in Year $2022$:

$\backslash$table$[[$Item $($in Package$),$$ per $100$ sqf$],[$Customized interior design,$80,000],[$Project management,$40,000],[$Annual maintenance services,$30,000]]$

Customers may order any of the service listed above independently, or in the form of "Art$-$Deco Package" to include all. On $1$ December $2022,$ the company signed a contract with a customer to provide the "Art$-$Deco Package" to furnish the customer's newly purchased flat in Yuen Long which has a total area of $400$ sqf$.$ Under the terms of the contract, Susie Interior Design Limited would provide the following:

$($a$)$ Provide customized design for the flat as per customer's requirement and taste;

$($b$)$ Provide project management service for the entire furnishing period; and

$($c$)$ Provide maintenance services for the flat for a period of two years $($Year $2023$ and $2024).$

The total contract price was $$700,000.$ The customized design was completed on $1$ January $2023$ and the furnishing project also started on that day. In addition, the contract was signed under a financing agreement. It was agreed that the customer would pay the customized interior design fee two years later with nil interest, i$.$e$.$ on $31$ Dec $2024.$ The market interest rate was $8\%.$ The amount for the project management service would be paid in the following proportion: $40\%$ on $31$ Dec $2023$ and $60\%$ on $31$ Dec $2024.$ The amount for maintenance service would be paid in two equal installments on $31$ Dec $2023$ and $2024.$

Required:

Explain how Susie Interior Design Limited should recognize the revenue in accordance with HKFRS $15$ Revenue from Contracts with Customers and prepare the journal entries to record those transactions for the year ended $31$ December $2023$ and $2024.$

$($Total $25$ marks$)$