CACC031 MOCK TEST 1

QUESTION 1

a) IFRS 15 Revenue from Contracts with Customers stipulates a 5-step revenue model for the
recognition and measurement of revenue.
• Step 1: Identify a contract
• Step 2: Identify the performance obligations
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the performance obligations identified in step 2
• Step 5: Recognise revenue for satisfied performance obligations

Step 1: Identify the contract

A contract with a customer will be

applicable if all the following criteria are
met:

• Both parties signed the sale contract on 1 (1)

• The parties to the contract have March 2022, thus they are committed to
approved the contract and are perform their respective obligations.
committed to perform their
respective obligations.

• The entity can identify each party’s •

The sales contract stipulates that Lights On
rights regarding the goods / services
Limited is obliged to deliver the electricity
to be transferred.
generating system (1) as well as the four
year service plan (1). In exchange for the
delivery of the goods and services Lights On
Limited will receive the R5 000 000
consideration.

• The entity can identify the payment • (1)

The sales contract also stipulates the
terms for the goods / services to be
payment terms – ie. that the payment of the
transferred.
consideration must be made on the day of
the delivery of the electricity generating
system to the customer.

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• The contract has • (1)
commercial substance. The contract has commercial substance as
the electricity generating system and related
service contract are promised in exchange
for consideration payable by the customer
and it is thus expected that the transaction
will cause a change in future cash flow.

• It is probable that the entity will collect (1)

• The customer paid the R5 000 000
consideration to which the entity is
consideration on 12 March 2022, the day of
entitled in exchange for goods /
services transferred to the delivery of the electricity generating system
by Lights On Limited and therefore there is
customer.
no assessment regarding the probability of
the collection of the consideration
applicable.

Step 2: Identify the performance obligations

In terms of the sales contract, the contract (1)
The definition of a performance
entails the sale of the electricity generating
obligation in terms of IFRS 15
system as well as the service of the electricity
Revenue from Contracts with generating system annually over a four-year
Customers is: period.
- A promise in a contract with a
customer to transfer to the customer
either:
- A goods item/service (or a bundle)
which is distinct ; OR
- a series distinct goods/services
which are substantially the same
with the same transfer pattern.
Both the electricity generating system and the (2)
In terms of IFRS 15 Revenue from service contract are capable of being distinct as
Contracts with Customers a the customer can benefit from each by the use
performance obligation is distinct if it is or resale thereof.
capable of being distinct (the customer
can benefit from the goods/services
either on its own or together with other
resources readily available)

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 CACC031 MOCK TEST 1

Lights On also supplies these service contracts (1)

AND distinct in the context of the
independently of sales contracts.
contract (entity’s promise to transfer
goods/services to customer is
separately identifiable from other
promises in the contract).

Goods or services are separately (2)

The supply of the electricity generating system
identifiable if:
and the annual service thereof are separately
(a) the entity does not provide a identifiable, since the two promises are not an

significant service to integrate input to a combined output; the two promises do

the goods / services with other
goods / services promised in the
contract; or
(b) the goods / service does not
significantly modify / customise
another good or
service
promised in the contract; or
(c) goods / services are not highly
dependent on / interrelated with
other goods / services promised
in the contract.
not modify each other and is also not highly
dependent on each other (the electricity
generating system and the service contract can
also be delivered independently from each
other).
Both the electricity generating system and the
service element are therefore separately
identifiable and therefore distinct in the context (1)
of the contract.
There are therefore two performance obligations
applicable to the sales contract:
- electricity generating system
(1)
- four-year service contract

Step 3: Determine the transaction price

The customer qualified for the settlement (1)
The transaction price is the amount of
discount and therefore the transaction price is 5
consideration an entity expects to be
250 000 – 5 % = 4 987 500.
entitled to in exchange for transferring
the promised goods or services to a
customer.

Step 4: Allocate the transaction price

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 As per step 2 above, the contract entails two
(1)
performance obligations namely the electricity
generating system and the four-year service
contract.
The R4 987 500 must therefore be allocated (1)
between these two performance obligations.
Allocation is made according to stand-alone
selling prices.
(1)

The fees that Lights On Limited would charge in (1)

an independent service contract would amount
to R780 000. The stand-alone selling price for
supplying the electricity generating system is R4
420 000. (1)

The consideration of R4 987 500 can therefore

be allocated as follows based on the standalone
selling prices:
• Electricity generating system (1)
= 4 987 500 x 4 420 000/5 200 000
= R4 239 375
• Service contract
(1)
= 4 987 500 x 780 000/5 200 000
= R748 125

Step 5: Recognition of revenue for satisfied performance obligations

Revenue will be recognised once Lights

On Limited has satisfied the
performance obligation – namely
transferred the promised goods /
services.

A performance obligation is satisfied

when control has transferred to the
customer.

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 CACC031 MOCK TEST 1

A performance obligation can be

satisfied in one of two ways:
- satisfied over time (in which case
revenue will also be recognised over
time); OR
- satisfied at a point in time (in which
case revenue will also be
recognised instantly)

It must first be determined if the

performance obligation will be satisfied
over time and if this is not the case, it
can be concluded that the performance
obligation is satisfied at a point in time.

There are three criteria applicable for Application (only need to motivate criteria one or
performance obligations to be satisfied two – rest included for completeness)

over time:

• the customer simultaneously (1)

The annual service of the electricity generating
receives and consumes the
system is routine and should another party take
benefits as the entity performs
over the service plan, the other party would not
its obligations
reperform the work already performed by Lights
On Limited. The customer can therefore be said
to receive and consume the benefits at the
same time that Lights On Limited performs its
obligations.

• the entity’s performance creates / (1)

enhances an asset which the
customer controls
With the service of each electricity generating
system Lights On Limited improves the asset.
The customer receives the benefit as the
service is done. Thus, the entity enhances the
asset that is controlled by the customer as it is
enhanced.

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 The use of the asset is not limited, therefore (1)
• the entity’s performance does not
criteria 3 is not met.
create an asset with an
alternative use for the customer

Conclusion:
The revenue must therefore also be recognised (1)
The performance obligation in relation
over time.
to the service contract is therefore
satisfied over time.
The performance obligation in relation (1)
to the electricity generating system is The customer obtains control on the day that the
satisfied at a point in time. electricity generating system is delivered to the
customer.(1) On that date the customer obtains
control of the asset. Therefore, the R4 239 375
revenue must be recognised on 1 March 2022,
the date of the transfer of the electricity
generating system to the customer.

The progress towards complete The total cost for Lights On Limited to supply the (1)
satisfaction of the performance service over the four year period amounts to
obligation must be measured. R500 000 and at the 31 May 2022 year end, no
costs have been incurred.
Therefore as at 31 May 2022, no revenue can
be recognised in terms of the service contract
and the full amount of R748 125 must be

credited to a contract liability account. (1)

As at 31 May 2023, R100 000 costs have been

(1)
incurred and therefore R150 000 [750 000 x
(100 000/500 000)] of the consideration can be
reversed from the contract liability account to
the revenue from contracts with customers
account.
(1)
The remaining R600 000 will remain in the
contract liability account until Lights On Limited
has performed all its outstanding obligations
over the four year period.

Logic and layout (1)

AVAILABLE MARKS: [29]

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 CACC031 MOCK TEST 1

MAXIMUM MARKS: [15]

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QUESTION 2

DEADLINE (PTY) LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE

FINANCIAL YEAR ENDING 30 JUNE 2022

1. Income tax expense

2022
R
Major components of tax expense
SA normal tax
- Current tax (refer to calculation 2) 262 033 (0.5P)
- Deferred tax (refer to calculation 3) (10 266) (0.5P)

Income tax expense 251 766

Tax reconciliation:
Applicable tax rate 28%
Tax effect of:
Profit before tax (849 166 x 28%) 237 766 (1.0)
Tax effect of non-taxable/non-deductible items

• Add non-deductible donations (50 000 X 28%) 14 000 (1.0)

Income tax expense 251 766

Effective tax rate: 251 766 / 849 166 29.65% (1.0P)

2. Deferred tax note
2022
R
The deferred tax balance comprises temporary differences
caused by:
• Property, plant and equipment (1 307) (0.5P)

• Prepaid expense (11 200) (0.5P)

• Income received in advance 2 800 (0.5P)

9 707

Calculations:

Calculation 1 (Correction of profit before tax)

Profit before tax provided: 859 166 (0.5)

Less: Income received in advance incorrectly included in profit (10 000) (1.0)
before tax (11 500 x 100/115)

849 166
Corrected profit before tax

Calculation 2 (Current tax calculation)

Profit before tax 849 166 (0.5P)

Adjust for permanent differences
Add: Donations (80 000 – 30 000) 50 000 (1.0)
Adjust for temporary differences (refer to Calculation 4) 36 665 (0.5P)
Taxable profit 935 831
Current tax at 28% (935 831 X 28%) 262 033 (1.0P)
Calculation 3 (deferred tax using the balance sheet approach)
TD DT A/(L) (TD
(CA - TB) x 28%)
CA TB

30 June 2022

Property, plant & equipment 60 667 C3.1 56 000 C3.2 4 667 (0.5) (1 307) (0.5)

Prepaid insurance (120 000 / 12 x 4) 40 000 (1.0) 0 (0.5) 40 000 (0.5) (11 200) (0.5)

Revenue received in advance (10 000) (0.5P) 0 (0.5) (10 000) (0.5) 2 800 (0.5)

Balance as at 30 June 2022 34 667 (1.0P) (9 707) (1.0P)

Calculation 3.1

Cost price of printer = 322 000 X 100/115

= R280 000 (1.0)

Carrying value of the printer at 30 June 2022: = R280 000 / 300 000 (0.5) X (300 000 – 235 000) (0.5)
= R60 667

Calculation 3.2

Tax base of the printer at 30 June 2022 = R280 000 X (40% - 20%) (1.0)
= R56 000
Calculation 4 (Movement for 2022): = 34 667(0.5P) – 71 332 (given) (0.5)
= 36 665
AVAILABLE MARKS: [21.5]
MAXIMUM MARKS: [19]
COMMUNICATIONS SKILLS: [1]