Define the following terms in accordance with IFRS 15: Revenue from contracts with customers: Contract

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Question:

Define the following terms in accordance with IFRS 15: Revenue from contracts with customers: • Contract • Contract asset • Contract liability • Customer • Income • Performance obligation • Revenue • Stand-alone selling price • Transaction price

a. What is the core principle of IFRS 15? (4)

b. Name and briefly describe the five-step revenue model in IFRS 15. (10)

c. Convenience Tech Shopping Ltd is a Namibia incorporated company specializing in providing online shopping via the internet. The company’s standard practice is to package a customer’s order for a price of N$175.

The company’s system operates as follows:

i. Customers phone through their orders to the company representatives;

ii. Company advises customer services offered and the cost thereof. For future reference purposes, all telephonic conversions are recorded;

iii. If the customer is agreeable to the terms provided by company representatives, a payment is made over the telephone via the customer’s credit card.

iv. On successful processing of the payment made by the customer, Convenience Tech Shopping Ltd gives the customer an access code for the company’s website in order to track its order.

Required

Discuss whether the online shopping service provided by Convenience Tech Shopping Ltd is a contract with a customer in accordance with IFRS 15.

d. Name and briefly describe the five-step revenue model in IFRS 15. (10)

e. Consider the following independent situation.

i. Settlement discount granted to creditworthy customers with a record of paying within terms. (4)

ii. Revenue consisting of gross sales of goods (including VAT) (3)

iii. Royalties amounting to N$45 000 are receivable from a publishing company on a commercial book licence granted by the copyright holder. In terms of the agreement, the amount is based on a certain percentage of book sales. (1)

iv. Sales of products in the amount of N$210 000 to various customers, subject to a 60-day money-back guarantee if the customer is not satisfied with the product. It is expected that 5% of the product sold will be refunded. (2)

v. Sales of goods by a wholesaler to a distributor for sale to end customers of the wholesaler. (2)

vi. Three delivery vehicles sold to a customer and for which the customer already paid. Registration and licencing of the vehicles in the customer’s name have been completed. Because of limited space, the customer requested that the vehicles be kept at the dealer’s premises until the customer is ready to collect them. (3)

Required

Briefly state, with reasons, how each of the above independent scenarios would be accounted for in terms of IFRS 15-Revenue from contracts with customers.