Questions:

Explain why recognizing revenue has no affect on the underlying economic activity of the entity.

On March 11, 2018, Adam Electronics (AE) entered into a contract to provide 100 point of sale terminals to an Ontario coffee chain. AE normally charges $1,800 per terminal. As part of the agreement, AE will provide two years of on-site technical support. A two-year contract with another similar company would cost $400 per terminal. AE has never done business with this coffee chain in the past, however, the Coffee chain has an excellent credit rating.

50 terminals were delivered to the coffee shops in May 2018, and 50 were delivered in June of 2018. There installation process was fairly straight forward, so AE did not charge for this separately. The total contract was $200,000.

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. Bonus marks will be awarded for excel files that utilize formulas and have been laid out in an easy to read manner.

Nest Water Ltd produces and sells bottled water. The company sells its products to distributors throughout Canada and the US. In the last few years, the companys financial position has deteriorated significantly due to increased competition and increased public scrutiny on the environmental impact of bottled water on the environment. Management is concerned that the company is in financial distress. Using the following cash flow statement, identify and explain your concerns about the company, and any other insights you may have. (See excel workbook)

Nest Water Ltd
Cash Flow Statement
For the Year Ended December 31,
Cash From Operations:		2017	2016
Net Income		(1,218,000)	(1,428,000)
Adjustments for non-cash items:
Depreciation		417,750	465,000
(Gain) Loss on disposal of assets		(487,500)	337,500
Writedown of assets		225,000	142,500
		(1,062,750)	(483,000)
Changes in non-cash working capital accounts
Accounts receivable		312,000	363,000
Inventory		225,000	135,000
Prepaids		127,500	151,500
Accounts payable		(132,000)	(165,000)
Cash From Operations:		(530,250)	1,500
Cash From Investing:
Issuance of short-term debt		450,000	337,500
Bank loans		637,500	750,000
Repayment of long term debt		(675,000)	(675,000)
Dividends paid		(1,500,000)	(1,500,000)
Cash from Financing		(1,087,500)	(1,087,500)
Investing Activities:
Purchase of property, plant and equipment		(108,000)	(18,000)
Proceeds from sale of equipment		1,425,000	727,500
Sale of Land		937,500	-
Cash from Investing Activities		1,167,000	(378,000)
Cash flow for the year (Change in cash)		636,750	(376,500)
Cash and cash equivalents, beginning of year		336,000	712,500
Cash and cash equivalents, end of year		972,750	336,000