Susie Interior Design Limited (Susie) provides interior design, project management and maintenance services for small flats...

  

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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: Item (in Package) Customized interior design Project management Annual maintenance services $ per 100 sqf 80,000 40,000 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. 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: Item (in Package) Customized interior design Project management Annual maintenance services $ per 100 sqf 80,000 40,000 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.

Answer rating: 100% (QA)

According to HKFRS 15 Revenue from Contracts with Customers revenue should be recognized when control of the goods or services is transferred to the customer which occurs when the customer obtains ben... View the full answer