UNIVERSITY OF JOHANNESBURG
COLLEGE FOR BUSINESS AND ECONOMICS
DEPARTMENT OF COMMERCIAL ACCOUNTING
FAC22A2
UNIT 3: Revenue Class tutorial 2 of 3
1. On which date did UJ recognise the computers supplied by Dell as assets in its
financial statements? Provide reasons for your answer.
• 31 December 2019:
i. This is the day on which UJ took possession/control of the computers
(assumed major risks and benefits of ownership).
ii. From this date, UJ can direct the use of the computers and gain most of the
remaining benefits from their use.
iii. The fact that the computers had not yet been installed on this date is
irrelevant.
2. How will Dell recognise the revenue from the sale and installation of the computers?
Your answer must include how the revenue from the installation will be recognised
if: a) the installation is completed on the 10th of January 2020, and b) the installation
was completed over the month of January 2020.
• Revenue is recognised when performance obligations are satisfied:
i. Revenue from the sale of the computers will be recognised at a point in
time. The date on which control is passed from Dell to UJ (i.e., 31
December 2019).
ii. Revenue from the installation of the computers will be recognised when the
installation is complete:
(a) on the 10th of January 2020 - The revenue from the installation will be
recognised at a point in time.
(b) over the month of January - The installation is done in stages over the
month of January, then the revenue will be recognised over time(over the
month of January)
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3. Journal entries
1 December 2019 -The date Dell and UJ entered into an agreement.
a. No journal entry
31 December 2019 – The date control of the computers was transferred to UJ
• Control of the computers was transferred to UJ on 31 December 2019.
• Meaning this performance obligation was fulfilled, therefore Dell has earned
revenue relating to the supply of the computers.
• Even though payment is due in January 2020 after the installation, Dell recognises a
receivable and revenue.
• The receivable represents the unconditional right to payment because it has fulfilled
its duty.
Date Accounts Debit Credit
31 Dec Trade receivables (SFP: A) ^ (W1) R1 428 571^
2019
Revenue - Computers (P/L: I) ^ R1 428 571^
Recognition of revenue relating to computers
January 2020 – Installations complete and transaction price/contract price received
• The entire transaction price was received in January 2020, thus debit bank with
R2 000 000.
• Because payment has been received, reverse the trade receivable raised in 2019
relating to the computers, UJ has settled the debt.
• The installation was performed the same time as the payment. Therefore, this
performance obligation is satisfied at a point in time.
• Recognise the portion of revenue allocated to the installation of the computers,
because the performance obligation was fulfilled.
Date Accounts Debit Credit
10 Jan Cash/Bank (SFP: A) ^ R2 000 000 ^
2020
Trade receivables (SFP: A) (W1) ^ R1 428 571 ^
Revenue – Installation (P/L: I) (W2) ^ R571 429 ^
Workings: Allocation of the transaction price to the separate performance obligations
• The contract has two performance obligations.
• Therefore, the transaction price must be allocated to each performance obligation
based on the individual stand-alone selling price.
(PO) SASP Calculation Allocation of TP
Computer R1 500 000^ (1 500 000 ^/ 2 100 000^) * R1 428 571 (W1)
2 000 000^
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Installation R600 000^ (600 000^ / 2 100 000^) * R571 429 (W2)
2 000 000^
Total R2 100 000^* R2 000 000^*
4. True Dell has given UJ a discount on the contract price.
A discount exists if the contract price is less than the sum total SSP.
• Contract Price = R2 000 000 (Given)
• Total sum of stand-alone selling prices = (1 500 000 + R600 000) = R2 100 000
• Discount = R2 100 000 – R2 000 000 = R100 000
Notes:
• Pay attention to the accounts that need to be debited and credited at each date.
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