Question 1

(a) Lindsay Richardson Sdn Bhd entered into a contract with Wing Seng Sdn Bhd to supply a machine on 1 January 2015. There is no deposit or any advance payment is required in order to secure this contract. However, Wing Seng Sdn Bhd is required to make 5 annual instalment payments of RM2 million effective from 31 December 2015. The implicit rate of interest is 10% for this transaction.

The present value of an annuity of RM1 per period is as follows:

Period------ 10%

1----------0.9091

2 ---------1.7355

3 ----------2.4869

4 ----------3.1699

5 ----------3.7908

Required: Determine the following:

(i) Sales revenue of the above transaction recognised in the year 2015.

(ii) Interest income for each of the 5 years.

(iii) Closing accounts receivable for each of the 5 years.

(b) Explain the 5 steps income recognition process outlined in MFRS 15 and distinguish the difference between expected value method and mostly likely amount method in recognising income under this accounting standard.

(c) An entity includes in the transaction price some or all of the amount of variable consideration estimated only to the extent that is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. This means that the entity must consider both the likelihood and the magnitude of the revenue reversal. Required: Explain by giving an example in the context of MFRS 15 when would you consider a significant reversal in the amount of cumulative revenue recognized will not occur.

(d) Sungai Emas Sdn Bhd sold 10 unit of iPhone on a credit basis to Windfall Sdn Bnd on 30 June 2019. The selling price of iphone is RM3,000 while the cost is RM1,500. Based on their verbal agreement, 50% of the sales value must be paid on 31 August 2019 and the balance will be paid on equal monthly basis for the rest of the year. On 15 August 2019, two of the iphone were returned as they were faulty. No replacement was made because no stocks were available.

Required: Provide the journal entries in the book of Sungai Emas Sdn Bhd with regards to this transaction in 2019.