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Chapter 20
CHAPTER 7 – REVENUE
Example 7.1
Revenue for year ended 31 December 20X1 = $695,833
Computer equipment
To recognise revenue from the sale of goods, the significant RISKS AND
REWARDS of ownership must have transferred to the buyer. The risks and
rewards relating to the computer equipment have been transferred as the
computer has been despatched and the customer has taken delivery. The
customer can start to enjoy the benefits of the computer.
The $675,000 (750,000 – 75,000) will be recognised as revenue on despatch.
After sales service
To recognise revenue from the sale of services, consideration of the stage of
completion of the service is required.
As the after sales service continues for 3 years, the revenue arising from the
service should be spread over the 3 year period (i.e. over the time the support is
provided for customers).
Therefore, 10/36 × $75,000 = $20,833 is recognised for the 10 months March to
December 20X1. The remaining 26 months of revenue will be recorded as
deferred income.
On despatch
Dr Cash 750,000 Cr Revenue 675,000 Cr Deferred income 75,000
Over 10m period of service
Dr Deferred income 20,833
Cr Revenue 20,833
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