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FAC3764 - Assignment 1
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FAC3764 EducationSAAssignment 1 - 2023
Unique number: 660614
Due date: 28/04/2023
, Question 1.a)
Discuss the correct recognition and measurement of transactions 1.1 and 1.2 in the accounting records of DD Armour
Ltd for the period ended 30 June 20x22, in terms of IFRS 15, Contracts with customers. The discussion must be
supported with calculations.
1.1) S4G Ltd Step 1:
We must be able to identify a contract with a customer: Contracts may be written, verbal or even simply be
implied! What is important, however, is that the contract is enforceable by law.
(GRIPPING GAAP, Page 127) (IFRS 15)
A contract is said to exist if it meets all the following five criteria:
a) If it is approved by all parties, who are also committed to fulfilling theirobligations;
b) if each parties rights to the goods and/or services are identifiable;
c) If the payment terms are identifiable;
d) If the contract has commercial substance (i.e. the risk, timing and amount of future cash flows is expected to
change); and
e) It is probable that the entity will collect the consideration to which it expects to be entitled
(GRIPPING GAAP, Page 135) (IFRS 15)
Step 2: We must be able to identify the performance obligations in this contract
Step 5: We must be able to identify when/as performance obligations are satisfied (GRIPPING GAAP,128)
At contract inception, we first assess if the performance obligation is satisfied over time. If it is not a
performance obligation satisfied over time, we conclude that it must be a performance obligation satisfied at a
point in time. In assessing if a performance obligation is satisfied over time, we consider whether the
performance obligation meets any one of the three core criteria.
- "If it fails to meet any of these criteria, then we conclude that it must be a performance obligation (PO) that
will be satisfied at a point in time" (GRIPPING GAAP, Page 183-184) (IFRS 15)
- The five criteria for recognising a contract are met when S4G signed on 1 August 20x21. There are 2
performance obligations that can be identified in the contract.
- When the transaction is assessed at inception we can conclude that the customer receives the assets on the
date of delivery and the purchase price is paid on the same date.
- The customer does not obtain control as the asset is being created, only once delivered.
- The information provided does not state that the entity has an enforceable right to payment for performance
completed to date.
The delivery of the vehicles is therefore a performance obligations that is satisfied at a point in time. However
the PO to service the vehicles meets criteria as the customer “consumes its benefits at the same time that the
entity performs its obligations”. Therefore the PO to service the vehicles is a PO satisfied over time.
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