Practical Question – Week 3

UNIVERSITY OF JOHANNESBURG

COLLEGE FOR BUSINESS AND ECONOMICS

DEPARTMENT OF COMMERCIAL ACCOUNTING

FAC22A2

UNIT 3: Revenue Practical – Week 3 (Adapted from IFRS: Applications Questions and
Solutions)

Learning objectives

• Know how to classify items on the statement of financial position

• Know the difference between income and revenue
• Know how to allocate the contract price/transaction price to different POs and recognise
revenue
• Know how to process journal entries
• Know how to present IFRS 15 transactions in financial statements

Alpha Ltd is a company that sells building materials. On 1 January 2020, Alpha Ltd entered into
a contract to transfer sand and cement to Beta Ltd in return for a consideration of R100 000. The
two products are considered to be separate performance obligations.

• The following information is available at the inception of the contract:

Product Stand-alone selling price Cost to complete the contract

Sand R45 000 R30 000

Cements R75 000 R60 000

Alpha Ltd delivered sand to Beta Ltd on 30 January 2020 and the cement on 27 February
2020. Beta Ltd settled the amount due on 5 March 2020.

The bank account balance on 1 January 2020 was R50 000. No other transactions, relating
to Bank, took place other than the ones mentioned above.

Ignore VAT in this question.

Required:

Part A

a. How should Alpha LTD classify the sand and cement on its statement of financial
position before selling it? (2 marks)

b. How should Alpha Ltd account for the sale of the two products once they have been
transferred to Beta LTD? (2 marks)

c. How much of the transaction price is allocated to the cement? (5 marks)

d. How much discount did the customer receive in this contract? (2 marks)

e. How much is the contract profit at the end of Contract? (2 marks)

f. Provide ALL the general journal entries arising from the transactions in the
accounting records of Alpha Ltd for the reporting period ended 31 December 2020.
Give reasons for the entries in the form of a journal narration. (13 marks)

Part B
g. Provide an extract of the financial statements of how the above transaction will
be presented assuming Alpha Ltd has the following year ends:
Ignore comparatives
1. 31 January 2020 (8)
2. 28 February 2020 (8)
3. 31 March 2020. (8)