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Professional fileIFRS 15L4 · Expert

Professional file: revenue review of an industrial and services group

19 documents19 tasks≈ 240 min
0 / 31 items completed
Standards
IFRS 15 — Revenue from Contracts with Customers
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

The Arvelis group (fictitious entities) designs and manufactures custom packaging lines and standard machines (Arvelis Machines division); it also performs plant upgrade works, provides maintenance contracts and sells spare parts, in particular on its online platform ArvelisParts (Arvelis Services division). Its reporting date is 31 December and it applies IFRS. You are in charge of the revenue review file at 31 December 20X4: existence of the contracts, performance obligations, transaction prices, allocation, timing of recognition, modification, contract balances, principal or agent, contract costs, entries, impact, note, responses to the reviewer's notes and conclusion. The entries of the file are presented as not yet recorded and cash collections are not dealt with, unless otherwise stated (teaching assumptions). Impairment of receivables and contract assets under IFRS 9, amortisation of contract cost assets and income tax are outside the scope.

Your assignment

The file contains documents of varying nature and reliability, two of which have no bearing, management proposals to be assessed, a draft note to be corrected and two items of missing information, one of which is obtained during the engagement. Assess the existence of the contracts, identify the performance obligations, determine the transaction prices (variable consideration and financing component), allocate the price of the Brévannes contract, determine the timing of recognition and the treatment of the Kervalo amendment, calculate the revenue on progress and the contract balances, determine the role of the platform, deal with the costs of the Valcourt contract, record the entries, measure their impact, prepare the note; document each judgement, respond to the reviewer's notes and conclude on the file.

You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Events

Chronology of the file

  1. September 1 20X3Signature date of the Kervalo contract · Dated fact of the file

    Document 6

  2. January 1 20X4Delivery and acceptance date of the machine · Dated fact of the file

    Document 10

  3. March 1 20X4Signature date of the Brévannes contract · Dated fact of the file

    Document 2

  4. June 30 20X4Date of the Brévannes milestone invoice · Signature date of the amendment · Dated fact of the file

    Document 5 · Document 7

  5. November 20 20X4Date of the Ostrevan order · Dated fact of the file

    Document 13

  6. December 15 20X4Signature date of the Valcourt contract · Dated fact of the file

    Document 14

  7. December 31 20X4Reporting date · Dated fact of the file

    Document 1

  8. March 31 20X5Acceptance deadline for the bonus · Dated fact of the file

    Document 6

  9. December 31 20X5Payment due date · Dated fact of the file

    Document 10

Documents

File documents

19 documents: open each one to read it.

Document 1Memo

Planning memo of the revenue review

Planning memo of the revenue review of the Arvelis group at 31 December 20X4. Contracts and items to be reviewed: Laiteries Brévannes packaging line, upgrade of the Brasserie Kervalo and its amendment, sale with deferred payment to Verreries Montclair, ArvelisParts platform, order from Sucrerie d'Ostrevan, Fromageries Valcourt maintenance contract, contract balances and note. Group policies (case data): progress of obligations satisfied over time is measured by the costs incurred relative to the total expected costs; annual maintenance contracts are billed in advance; the group applies the practical expedient that exempts it from disclosing the price allocated to the remaining obligations of contracts with an original expected duration of one year or less.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Reporting dateDecember 31 20X4
Signature date of the Brévannes contractMarch 1 20X4
Total price of the Brévannes contract€5,640,000.00
Amount stated in the contract for the line€5,240,000.00
Amount stated in the contract for the maintenance€400,000.00
Maintenance term (years)4 years
Total expected costs of the line€4,000,000.00
Usual margin on custom lines (as a % of cost)25%
Annual price of maintenance sold separately€250,000.00
Costs incurred on the line since inception€2,800,000.00
Date of the Brévannes milestone invoiceJune 30 20X4
Milestone invoice issued to Brévannes€1,692,000.00
Signature date of the Kervalo contractSeptember 1 20X3
Original price of the Kervalo contract€2,600,000.00
Early acceptance bonus€180,000.00
Acceptance deadline for the bonusMarch 31 20X5
Signature date of the amendmentJune 30 20X4
Price of the works added by the amendment€500,000.00
Expected costs of the added works€300,000.00
Original total expected costs€2,080,000.00
Costs incurred at 31 December 20X3€520,000.00
Revenue recognised in 20X3€650,000.00
Billings of 20X3€520,000.00
Upward revision of the costs of the original works€120,000.00
Costs incurred since inception at 31 December 20X4€1,875,000.00
Billings of 20X4€1,450,000.00
Estimated probability of earning the bonus65%
Estimated probability of not earning it35%
Delivery and acceptance date of the machineJanuary 1 20X4
Price payable at the due date€1,573,000.00
Payment due dateDecember 31 20X5
Period between delivery and payment (years)2 years
Cash selling price of the same machine€1,300,000.00
Rate of a separate financing granted to Montclair10%
Average rate of the group bank borrowings4%
Platform commission rate12%
Amounts collected from buyers for third-party suppliers parts€1,750,000.00
Amounts due to third-party suppliers€1,540,000.00
Sales of Arvelis-brand parts€640,000.00
Date of the Ostrevan orderNovember 20 20X4
Price of the machine ordered€420,000.00
Non-refundable deposit received€84,000.00
Signature date of the Valcourt contractDecember 15 20X4
Annual maintenance fee€180,000.00
Contract term (years)5 years
Commission due to the salesperson€90,000.00
Travel costs of the bid team€14,000.00
Legal fees for the review of the bid€21,000.00
Set-up of the dedicated remote monitoring system€64,000.00
Share of the maintenance department overheads€27,000.00
Sales of the other standard machines€3,800,000.00
Revenue from the annual maintenance contracts€960,000.00
Trade receivables at the start of the year€1,380,000.00
Trade receivables at the reporting date€2,960,000.00
Contract assets at the start of the year€130,000.00
Contract liabilities at the start of the year€310,000.00
Contract liabilities at the reporting date€270,000.00
Revenue presented in the draft note€10,533,000.00
Net contract balance presented in the draft€220,000.00
Annual vehicle rents€96,000.00
Value of the head office building€6,800,000.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort19

  • Planning memo of the revenue review

  • Laiteries Brévannes contract (packaging line and maintenance)

  • Pricing memo from the sales department

  • Technical and legal memo on the Brévannes line

  • Brévannes contract tracking at 31 December 20X4

  • Brasserie Kervalo contract (brewery upgrade)

  • Amendment No. 1 to the Kervalo contract signed by both parties

  • Kervalo contract tracking

  • Management memo on the early acceptance bonus

  • Verreries Montclair contract and delivery note

  • Group treasury memo

  • Spare-parts platform terms and ledger extract

  • Credit committee minutes on the Ostrevan order

  • Fromageries Valcourt maintenance contract

  • Statement of the costs related to the Valcourt contract

  • Extract of the group ledger and balances

  • Draft revenue note

  • Company car leases

  • Valuation report on the head office building

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Analysis

        Analyse the file: which accounting issues arise, which documents are useful and which information is missing?

      2. Task 2Professional judgement

        Assess whether a contract with a customer exists for the Brévannes, Kervalo, Ostrevan and Valcourt arrangements.

      3. Task 3Professional judgement

        Identify the performance obligations of the Brévannes and Kervalo contracts.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Identify the performance obligations of the Brévannes and Kervalo contracts.

        1. units
        2. units

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Number of performance obligations of the Kervalo contract

      4. Task 4Calculation

        Estimate the early acceptance bonus of the Kervalo contract.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Estimate the early acceptance bonus of the Kervalo contract.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Bonus estimated using the most likely amount

      5. Task 5Professional judgement

        Which estimation method applies and which part of the bonus is included in the transaction price?

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Which estimation method applies and which part of the bonus is included in the transaction price?

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Calculation

        Determine the transaction price of the Kervalo contract after the amendment.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Determine the transaction price of the Kervalo contract after the amendment.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Transaction price of the Kervalo contract

      7. Task 7Calculation

        Analyse the Montclair deferred payment and determine the transaction price of the sale.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Analyse the Montclair deferred payment and determine the transaction price of the sale.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Transaction price of the Montclair sale

      8. Task 8Calculation

        Calculate the interest of the financing component and the Montclair receivable at the reporting date.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the interest of the financing component and the Montclair receivable at the reporting date.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Montclair receivable at 31 December 20X4

      9. Task 9Calculation

        Estimate the stand-alone selling prices and allocate the price of the Brévannes contract.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Estimate the stand-alone selling prices and allocate the price of the Brévannes contract.

        1. €
        2. €
        3. €
        4. €
        5. €
        6. €

        Checks

        • 0 / 6 steps entered
        • Amounts readable

        Result: Total allocated (check)

      10. Task 10Professional judgement

        Determine the timing of recognition, the treatment of the amendment and the principal or agent role.

      11. Task 11Calculation

        Calculate the revenue on the progress of the Brévannes and Kervalo contracts.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the revenue on the progress of the Brévannes and Kervalo contracts.

        1. €
        2. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Kervalo contract revenue for 20X4

      12. Task 12Calculation

        Calculate the balance of each contract at the reporting date.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the balance of each contract at the reporting date.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Kervalo contract asset

      13. Task 13Calculation

        Calculate the platform revenue for the third-party suppliers parts.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the platform revenue for the third-party suppliers parts.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      14. Task 14Calculation

        Determine the costs of the Valcourt contract to be recognised as an asset.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Determine the costs of the Valcourt contract to be recognised as an asset.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Costs recognised as an expense

      15. Task 15Journal entries

        Record the entries of the file.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 8

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Journal entry · Journal entries

        Entry 2 of 8

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 3 · Journal entry · Journal entries

        Entry 3 of 8

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 4 · Journal entry · Journal entries

        Entry 4 of 8

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 5 · Journal entry · Journal entries

        Entry 5 of 8

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 6 · Journal entry · Journal entries

        Entry 6 of 8

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 7 · Journal entry · Journal entries

        Entry 7 of 8

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 8 · Journal entry · Journal entries

        Entry 8 of 8

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      16. Task 16Effects on the financial statements

        What is the impact of the entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        5. Notes

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      17. Task 17Analysis

        Prepare the disaggregation of revenue, the contract balances and the remaining performance obligations.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Prepare the disaggregation of revenue, the contract balances and the remaining performance obligations.

        1. €
        2. €
        3. €
        4. €
        5. €
        6. €
        7. €

        Checks

        • 0 / 7 steps entered
        • Amounts readable

        Result: Transaction price allocated to the remaining obligations

      18. Task 18Professional judgement

        Correct the draft note and list the disclosures.

      19. Task 19Conclusion

        Write the conclusion of the file and the open points.

      File review

      Points raised during the review of this file: read them as the preparer would.

      Review notes

      • BlockingResolvedBlocking note: Brévannes revenue not agreed to the allocation and the cost tracking; to be corrected.
      • BlockingResolvedBlocking note: approval of the Kervalo amendment not supported in the file.
      • BlockingResolvedBlocking note: note not agreed to the entries, the balances and the remaining obligations.
      • Non-blockingOpenNon-blocking note: reassessment of the Kervalo bonus at the next reporting date, outside this file.

      Information requests

      • ObtainedRequest to the legal department: Kervalo amendment signed by the customer.
      • Assumption documentedRequest to the supplier: confirmation of the heat exchanger delivery date; judgement documented without it.

      Completion checklist

      • Workpapers completed and agreed to the documents.Done
      • Entries balanced and agreed to the workpapers.Done
      • Note agreed to revenue, contract balances and remaining obligations.Done
      • Reviewer's blocking notes resolved.Done
      • Normative references.To review
      • Practical expedient for incremental costs of obtaining a contract: not applicable.Not applicable

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 31).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 15 §9
      • IFRS 15 §10
      • IFRS 15 §12
      • IFRS 15 §13
      • IFRS 15 §14
      • IFRS 15 §15
      • IFRS 15 §16
      • IFRS 15 §18
      • IFRS 15 §20
      • IFRS 15 §21
      • IFRS 15 §27
      • IFRS 15 §29
      • IFRS 15 §30
      • IFRS 15 §50
      • IFRS 15 §53
      • IFRS 15 §54
      • IFRS 15 §56
      • IFRS 15 §57
      • IFRS 15
      • IFRS 15 §60
      • IFRS 15 §61
      • IFRS 15 §62
      • IFRS 15 §64
      • IFRS 15 §65
      • IFRS 15 §73
      • IFRS 15 §74
      • IFRS 15 §76
      • IFRS 15 §77
      • IFRS 15 §78
      • IFRS 15 §79
      • IFRS 15 §31
      • IFRS 15 §32
      • IFRS 15 §35
      • IFRS 15 §36
      • IFRS 15 §37
      • IFRS 15 §B5
      • IFRS 15
      • IFRS 15 §B8
      • IFRS 15 §B9
      • IFRS 15 §39
      • IFRS 15
      • IFRS 15
      • IFRS 15 §43
      • IFRS 15 §44
      • IFRS 15 §B18
      • IFRS 15 §105
      • IFRS 15 §106
      • IFRS 15 §107
      • IFRS 15 §108
      • IFRS 15 §B34
      • IFRS 15 §B34A
      • IFRS 15 §B35
      • IFRS 15 §B35B
      • IFRS 15 §B36
      • IFRS 15 §B37
      • IFRS 15 §B37A
      • IFRS 15 §91
      • IFRS 15 §92
      • IFRS 15 §93
      • IFRS 15 §94
      • IFRS 15 §95
      • IFRS 15
      • IFRS 15 §97
      • IFRS 15
      • IFRS 15 §51
      • IFRS 15 §33
      • IFRS 15 §110
      • IFRS 15
      • IFRS 15 §114
      • IFRS 15 §116
      • IFRS 15 §119
      • IFRS 15 §120
      • IFRS 15 §121
      • IFRS 15 §122
      • IFRS 15 §123
      • IFRS 15 §124
      • IFRS 15 §126
      • IFRS 15 §127
      • IFRS 15 §128
      • IFRS 15 §129
      • IFRS 15
      • IFRS 15