Question 12 &13 are based on the following information On January 1, 2018, Emmet

Question

Question 12 &13 are based on the following information On January 1, 2018, Emmet entered into a 6-month contract to provide installation service.Under the terms of the contract, Emmet will be paid a fixed fee of $30,000 and will receive an additional 15% of the fixed fee at the end of the contract if Emmet receives an average evaluation of"excellent". Emmet determined that this contract qualifies for revenue recognition over time. Assume Emmet estimates variable consideration as the most likely amount. 12. On January 31, 2018, Emmet estimates a 30% chance it will earn the bonus. How much revenue should Emmet recognize on this contract in January 2018? a) $5,000 b) $5,225 c) $5,750 d) $30,000 13. On February 28, 2018, Emmet estimates a 60% chance it will earn the bonus. How much revenue should Emmet recognize in February 2018? a. 5,000 b. 5,750 c. 6,500 d. 30,000

Explanation / Answer

Ans: As per the applicable accounting standards under IFRS the revenue should be recognised when there is a reasonable certainity that all risk and reward associated with the contract will flow to the assessee.

12: a) $ 5000

Reason: Only fixed portion to be recognised proportionately , and variable portion shouldn't be recognised as there is higher uncertainity of not receiving it.

Revenue=30000 x 1/6 months = $5000

13) c) $ 6500

Solution: Assuming no variable revenue is recognised in the month of january

                 revenue= $ 30000 x 1/6 month + 30000 x 15% x 2/6 month

                                = $ 6500

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