Question

2. On June 15, Muskoka Rentals (MR) entered into a contract to provide the following to Tomulka Inc for their event on August 15, 2018.

- 1,500 White folding chairs

- 40 large round tables

- 40 large table linens

- 1 arbour

-

The standard contract prices are as follows:

Standard cost per item

Chairs $2.50

Table linens $10

Round tables $20

Arbour $250

Delivery (including set up) $450

Pickup (Including tear down) $200

Muskoka Rentals has charged $5,500 total for the rental, set up, take down and delivery.

MR will deliver the items on August 15, 2018, and they will pick it up on August 22, 2018.

MR has never done business with Tomulka Inc in the past, however, the Tomulka Inc has an excellent credit rating.

Set up will occur on August 15, and takedown will occur on August 22.

Explain when revenue should be recognized for each source of revenue using the IFRS 15 revenue recognition criteria.

Prepare the journal entries.

Notes:

- You must address the 5 steps in IFRS 15

- Prepare step 4 using excel.

- Use excel files that utilize formulas and have been laid out in an easy to read manner.

Answer 1

Ans) As per IFRS 15 "Revenue from Contract with customers", five steps are as follows:-
Step 1: Identification of contract with customers and the collectability of revenue.
One of the 5 criteria that must be met for a contract to exist is that it is probable that the entity will collect the revenue consideration to which it is entitled after execution of contract. In th present case, it is $5500.
Step 2: Idenfying the performance obligations in the contract.
As per IFRS 15, the definition of "Performance obligation" is being given which is " a promised goods or service to a customer that is distinct". Here it is rental services given by Muskoka Rentals to Tomulka Inc.
Step 3: Determine the Transaction Price.
The Transaction Price is the amount to which the entity is entitled in exchange for the transfer of goods or services. Since the tomulka Inc has excellent credit rating, then it is more probable that the consideration will be recognised by the entity.
Step 4: Allocate the Transaction Price to the Performance obligations in the contract.
Where a contract contain a multiple performance obligations, then an entity will have to allocate the transaction price to the performance obligations in the contract by reference to their relative standalone selling prices.If there is any overall discount is given,then it is allocated between performance obligations on a relative standalone selling price basis.
Any overall discount compared to the aggregate of standalone selling prices is allocated between performance obligations on a relative standalone selling price basis
Calculation of Transaction Price:	Amount($)
Chairs(1500*$2.50)	3750
Tables Linens(40*$10)	400
Round Tables(40*$20)	800
Arbour(1*$250)	250
Total	5200
Delivery Charges	450
Pichup Charges	200
Total Charges	5850
Less: Discount	(350)
Total Payable	5500
Step 5: Recognise "Revenue" when the entity has satisfied the Performance obligation.
As per IFRS 15, revenue is recognised when the control is passed, either over time or at a point of time and "Control of an asset" means the ability to direct the use of and obtain substantially all of the remaining benefits from the asset. Since in the given case, assets(i.e. chairs, tables, table linens, etc) is transfered for the right to use on 15th August, therefore the revenue will be recognised on that same date by the entity.