Fastner Ltds accountant is currently preparing the financial statements for the year ended 30th November 2020 and is reviewing two customer contracts which were signed during the current financial year to determine the revenue which should be recognised for each of these contracts under IFRS15.

Contract 1

In February 2020 Fastner Ltd entered into a contract with Jackson Ltd for the supply,

installation and annual servicing of 20 mainframe computers. See details of the relevant prices and costs associated with this contract.

below table for

Customer billings

1,724,250 217,800 907,500

Mainframe Installation Annual service

Unit Price before sales tax 95,000 12,000 7,500

Unit Cost before sales tax 90,000 10,000 5,500

Sales Tax

21% 21% 21%

• 15 of the 20 mainframe computers were delivered to Jackson Ltd between February and November 2020 and Fastner Ltd invoiced Jackson Ltd for the supply and installation of these 15 mainframe computers on 1st November 2020.

• Due to Covid-19 restrictions only 10 of these 15 mainframe computers were fully installed by 30th November 2020.

• During December 2020 delivery of the last 5 mainframe computers was made to Jackson Ltd and the remaining installation was also completed in this month.

• Under the contract Fastner Ltd will conduct 5 years of annual servicing for mainframes installed, the annual service will take place on 15th November each year. The first service took place on 15 November 2020. The customer requested an invoice for the full 5 year service cost for all twenty mainframes

  and this was issued by Fastner Ltd on 30th Nov 2020.

  Contract 2

  On 1 January 2020 Fastner Ltd entered into a three year contract with Profound Ltd for the supply of laptops. If Profound Ltd order 800 or more laptops over the term of the contract, the unit price payable by Profound for each laptop will be 500. However, if less than 800 laptops are ordered by Profound Ltd over the term of the contract then the unit price payable will be 750. At the end of November 2020 Fastner had supplied a total of 220 laptops based on orders received each month from Profound Ltd and Profound have confirmed that it will continue to order laptops at the same monthly rate for the remainder of the contract.

  Question 1 continues overleaf.....

2

Question 1 continued....

Required:

1. a) For each contract identify the performance obligations which have been satisfied in the financial year ended 30th November 2020 and advise if the revenue associated with each performance obligation should be recognised over time or at a point in time.

   5 marks

2. b) Prepare all of the workings to determine the amount of revenue that should be recognised for each of these two contracts in Fastner Ltds financial statements for the year ended 30th November 2020 and show how these customer contracts would be presented in the statement of profit and loss, statement of financial position of Fastner Ltd for the year ended 30 November 2020 in accordance with IFRS 15.