Page 407 - SBR Integrated Workbook STUDENT S18-J19

Answers

Example 7

Control

If revenue is recognised at a point in time, the entity must determine the point
in time at which the customer obtains control over the promised asset. Control
refers to the ability to direct the use of the asset and to obtain substantially all
of the remaining benefits.

Due to the repurchase agreement, the customer has not obtained substantially
all of the remaining benefits of the asset. Control of the asset has not passed
to the customer and so revenue should not be recognised.

In substance this is a financing arrangement because the repurchase amount
exceeds the original selling price. A financial liability for $2 million should be
recognised. Interest of $1 million ($3m – $2m) should be recognised over the
three year period

If the option to repurchase the building lapses then the liability should be
derecognised and revenue will be recognised.

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