Question 1 Just before the end of the financial year, a customer requested Company A to...

 

Transcribed Image Text:

Question 1 Just before the end of the financial year, a customer requested Company A to delay the delivery of 500,000 units of products until early the following year because at the time the customer did not have enough space to store the goods. The customer, however, indicated to Company A that it could still issue the invoice as if the goods had been delivered at the date specified in the purchase order and he agreed to settle the amount within 90 days of the invoice date under the usual credit terms granted to him. Company A invoiced the customer before the year ended 31 December 2015. Company L operates a logistics company. Customers place their orders with Company L for airfreight or surface transportation services required. Company L in turn places its order with the necessary carriers. Company L can cancel its order with the carrier if its customers cancel their order with Company L. Company L does not bear the risk of loss or other responsibility during the transportation process. Company L can normally earn a margin of 10% on airfreight and 5% on surface transportation. Company L customers usually pay the gross amount to Company L directly, while Company L pays the gross amount to the carriers. Both company A and L adopt HKFRS 15 "Revenue from Contracts with Customers' with effect from 1 January 2015. Required: Determine how the above transactions of Company A and Company L should be accounted for in terms of the timing of recognition and the income statement presentation. You should give specific explanations by referring to HKFRS 15. (8 marks) Question 1 Just before the end of the financial year, a customer requested Company A to delay the delivery of 500,000 units of products until early the following year because at the time the customer did not have enough space to store the goods. The customer, however, indicated to Company A that it could still issue the invoice as if the goods had been delivered at the date specified in the purchase order and he agreed to settle the amount within 90 days of the invoice date under the usual credit terms granted to him. Company A invoiced the customer before the year ended 31 December 2015. Company L operates a logistics company. Customers place their orders with Company L for airfreight or surface transportation services required. Company L in turn places its order with the necessary carriers. Company L can cancel its order with the carrier if its customers cancel their order with Company L. Company L does not bear the risk of loss or other responsibility during the transportation process. Company L can normally earn a margin of 10% on airfreight and 5% on surface transportation. Company L customers usually pay the gross amount to Company L directly, while Company L pays the gross amount to the carriers. Both company A and L adopt HKFRS 15 "Revenue from Contracts with Customers' with effect from 1 January 2015. Required: Determine how the above transactions of Company A and Company L should be accounted for in terms of the timing of recognition and the income statement presentation. You should give specific explanations by referring to HKFRS 15. (8 marks)

Answer rating: 100% (QA)

Answer Company A should recognize the revenue on 500000 units of products in the next financial year ... View the full answer