Week 2 - Revenue & How Useful is Corporate Reporting?

Question 1

Corporate Reporting Overload: Boilerplate

Answer 1

Standardised disclosures in annual reports, reused each year with little cjamge, generic

Reduces stakeholder interest in corporate reports

FRC highlighted this issue (Thematic Review 2024) - “Better reporting does not mean more disclosures”

Question 2

Solutions to improve reporting overload

4

Answer 2

Use materiality to decide what ti include

Use appendices/seperate reports

Exclude irrelevant info

User-friendy structure infographics to avoid ‘Boilerplate’ issue

Question 3

IFRS 15 Revenue: 5 Recognition steps

Answer 3

COPAR

Identify CONTRACTS w customer
Identify the OBLIGATIONS
Determine PRICE
ALLOCATE the price to the performance obligation
RECOGNISE revenue when the entity satisfies a performance obligation

Question 4

Allocating Transaction Prices:
How to do the working

Answer 4

Obligation | Price per obligation (total cost) | Allocate to transaction price (pro rate it to transaction price) | Revenue

TOTAL row at the bottom: Price per obligation total should be higher than the transaction price, then the Revenue columns TOTAL should = transactio price, as they should all have been prorated

e.g. Transaction price is £50,000
Machine & installation obligation price is £51k, and the service checks (£600) AND technical Support (£4k) comes to a total price per obligation of £55,600

So in Allocate to transaction price column, for the machine & installation we would do (51,000/55,600) x 50,000

Then (600/55,600) x 50,000 = 540
(4,000/55,600) x 50,000 = 3,597

45,863+540+3,597 = 50,000 (transaction price)

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Question 5

Recognising Revenue Example

Answer 5

Machine sold fo £100,000, £20k deposit refundable if machine not delivered. How to recognise the revenue?

Debit cash £20k, Credit Contract Liability £20k (NO REVENUE AS ITEM NOT DELIVERED TO CUSTOMER YET, even though deposit is non-refundable)

Once machine’s delivered:
Debit cash £80,000
Debit Contract Liability £20,000
Credit Revnue £100,000

Question 6

Recognising Revenue: Warranty Example

Answer 6

Firm sells printers for £5k, but offers 12 month warranty.
Total yearly cost of repairs & replacements onw arranty is £50k

Dr Cash: £5k
Cr Revenue: £5k

Set up a provision:
Dr Expenses: £50k
Cr Provision: £50k