Practice Exercise 2 Practice Exercise 2 SVK Corporation is a manufacturer of pri
ID: 2585829 • Letter: P
Question
Practice Exercise 2
Practice Exercise 2
SVK Corporation is a manufacturer of printed circuit boards. For each of the following situations, indicate whether SVK should record the transaction as revenue under current IFRS and ASPE standards.Revenue (a) SVK received a purchase order from a customer, ordering 300 circuit boards to be delivered in six weeks’ time. The order can be cancelled any time before shipping takes place.
YesNo
(b) SVK delivered 725 circuit boards to a customer as ordered. Terms of the order called for payment in 30 days, and title to the boards transferred to the customer upon shipment of the product.YesNo
(c) SVK received a purchase order from a customer for 200 circuit boards. Since the boards were in-stock, SVK could ship immediately. However, the customer’s credit rating was very poor. SVK’s President decided to ship the boards anyway, in the hope that the customer could pay, after all.YesNo
Explanation / Answer
Answer:
Revenue
Explanation
(a)
SVK received a purchase order from a customer,
ordering 300 circuit boards to be delivered in six weeks’ time. The order can be cancelled any time before shipping takes place.
No
Under current IFRS and ASPE revenue recognition standards, we look at the risks and rewards of ownership of the product. Since the order can be cancelled at any time, the risks have not been transferred to the customer, and this transaction should not be recorded as revenue
(b)
SVK delivered 725 circuit boards to a customer as ordered. Terms of the order called for payment in 30 days, and title to the boards transferred to the customer upon shipment of the product.
Yes
Under current IFRS and ASPE standards, this would be recorded as revenue for SVK, as the company has substantially completed its performance by shipping the product
(c)
SVK received a purchase order from a customer for 200 circuit boards. Since the boards were in-stock, SVK could ship immediately. However, the customer’s credit rating was very poor. SVK’s President decided to ship the boards anyway, in the hope that the customer could pay, after all.
No
Under current IFRS and ASPE standards, the collectability of the receivable is key to determining whether to recognize revenue. In this situation, collectability of the receivable is not reasonably assured, so no revenue should be recorded. When (and if) the customer pays, the revenue should be recorded only at that time (similar to the cash-basis of accounting).
Revenue
Explanation
(a)
SVK received a purchase order from a customer,
ordering 300 circuit boards to be delivered in six weeks’ time. The order can be cancelled any time before shipping takes place.
No
Under current IFRS and ASPE revenue recognition standards, we look at the risks and rewards of ownership of the product. Since the order can be cancelled at any time, the risks have not been transferred to the customer, and this transaction should not be recorded as revenue
(b)
SVK delivered 725 circuit boards to a customer as ordered. Terms of the order called for payment in 30 days, and title to the boards transferred to the customer upon shipment of the product.
Yes
Under current IFRS and ASPE standards, this would be recorded as revenue for SVK, as the company has substantially completed its performance by shipping the product
(c)
SVK received a purchase order from a customer for 200 circuit boards. Since the boards were in-stock, SVK could ship immediately. However, the customer’s credit rating was very poor. SVK’s President decided to ship the boards anyway, in the hope that the customer could pay, after all.
No
Under current IFRS and ASPE standards, the collectability of the receivable is key to determining whether to recognize revenue. In this situation, collectability of the receivable is not reasonably assured, so no revenue should be recorded. When (and if) the customer pays, the revenue should be recorded only at that time (similar to the cash-basis of accounting).
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