Question

On January 15, 2021, Concord Company enters into a contract to build custom equipment for Shamrock Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. The revenue for this contract should be ...?

Answer 1

According to IFRS 15, all of the following six conditions must be met for a company to recognize revenue:

• There is a transfer of significant risks and rewards associated with ownership
• There is a loss of continuing managerial involvement or control to the degree usually associated with ownership
• The amount of revenue inflow can be measured reliably
• It is probable that economic benefits will flow to the seller
• The costs incurred or the cost to be incurred can be measured reliably
• Peformance obligation has been fulfilled.

For the sale of goods, most of the time, revenue is recognized upon delivery. This is because, at the time of delivery, all six criteria are met.

For the sale of goods, IFRS 15 standards do not permit revenue recognition prior to delivery. IFRS-15 does, however, permit revenue recognition after delivery.

-In the Given case-

On January 15, 2021, Concord Company enters into a contract to build custom equipment for Shamrock Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery.

- Assuming the reporting period ends on 31 March 2021, No revenue should be recorded before 31 March 2021 becase it is not delivered yet and the performance obligation has not been fulfilled by the seller before 31 March 2021

-The revenue for this contract should be  Recorded when the delivery is made.