Question

Convenience Tech Shopping Ltd is a Namibian incorporated company specialising in providing
online shopping via the internet. The company’s standard practice is to package a customer’s
order for a price of $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.
iv. 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.
v. 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. (5)

Answer 1

Yes , the online shopping service provided bu Convenience Tech Shopping Ltd is a contract with customer in accordance with IFRS 15.(5)

IFRS -15 :REVENUE FROM CONTRACTS WITH CUSTOMERS

The Core principle of IFRS is that an entity will recognise the revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity is expects to be entitled in excahnge for goods or sevices.This core principle is delivered in a five step model framework, meaning if the following conditions are satisfied only then the Contract for which revenue is recognised will be considered as IFRS 15.5 contract.

Those 5 conditions are as follows:

1.Identify the contract(s) with a customer: This means the conditions of a legal contract should be satisfied.

2.Identify the separate performance obligations in the contract.

3.Determination of the transaction price

4. Allocate the transaction price to the performance obligations of the contract

5.Recognise the revenue when ( or as) the entity satisfies the performance obligation.

Lets us now see if the convenience Ltd online platform satisfies the 5 force framework.As specified in the question,

1.As the customer phones to the company for order , it satisfies 1st condition as the contract is identified by the customer

2.Company advises the customer services offered and cost therof..meaning the transaction performance obligations are identified in this stage

3.Then the company specifies its standard price of $175 which implies for the determination of transacation price

4.Then the customer if satisfied makes the payment therby allocating the transaction price to the performance obligations in the contract.

5. After the successful processing of payment, the company gives access code of their website to customers implying legal ownership of ordered goods.Thus the revenue is recognised.

Since all 5 points of contract is fulfilled, It can be said that the online shopping service provided by Convenience Tech Shopping Ltd is a
contract with a customer in accordance with IFRS 15. (5).