Fusilli plc operates a business building and selling high-tech specialized machinery that takes two years to build. Delivery and legal title to the machinery passes to the customer once construction is complete. On 1 October 2020 Fusilli entered a contract to sell one of its machines to Orzo for £955,000 with payment on completion in two years. Alternatively, Orzo can pay £850,000 on signing the contract. The difference in price is equivalent to a 6% borrowing rate. The customer decides to pay upfront and pays £850,000 on 1 October 2020 Fusilli has a 30 September 2021 year-end.

(i) When should Fusilli recognize the revenue on this contract? Explain your rationale. 

(ii) Determine the amount that IFRS 15 would consider to be the transaction price of the contract. 

(iii) How should the difference between the two contract prices be accounted for in the Statement of profit or loss and Statement of financial position over the contract? 

(iv) Show the accounting entries (using either debits and credits or the expanded accounting equation) for the year ended 30 September 2021

Answer rating: 100% (QA)

i Fusilli should recognize the revenue upon completion when legal title and ... View the full answer