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
September 1 20X3Signature date of the Kervalo contract · Dated fact of the file
Document 6
January 1 20X4Delivery and acceptance date of the machine · Dated fact of the file
Document 10
March 1 20X4Signature date of the Brévannes contract · Dated fact of the file
Document 2
June 30 20X4Date of the Brévannes milestone invoice · Signature date of the amendment · Dated fact of the file
Document 5 · Document 7
November 20 20X4Date of the Ostrevan order · Dated fact of the file
Document 13
December 15 20X4Signature date of the Valcourt contract · Dated fact of the file
Document 14
December 31 20X4Reporting date · Dated fact of the file
Document 1
March 31 20X5Acceptance deadline for the bonus · Dated fact of the file
Document 6
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.
Item
Value
Found in
Reporting date
December 31 20X4
Signature date of the Brévannes contract
March 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 invoice
June 30 20X4
Milestone invoice issued to Brévannes
€1,692,000.00
Signature date of the Kervalo contract
September 1 20X3
Original price of the Kervalo contract
€2,600,000.00
Early acceptance bonus
€180,000.00
Acceptance deadline for the bonus
March 31 20X5
Signature date of the amendment
June 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 bonus
65%
Estimated probability of not earning it
35%
Delivery and acceptance date of the machine
January 1 20X4
Price payable at the due date
€1,573,000.00
Payment due date
December 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 Montclair
10%
Average rate of the group bank borrowings
4%
Platform commission rate
12%
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 order
November 20 20X4
Price of the machine ordered
€420,000.00
Non-refundable deposit received
€84,000.00
Signature date of the Valcourt contract
December 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.
1
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.
Task 1Analysis
Analyse the file: which accounting issues arise, which documents are useful and which information is missing?
Task 2Professional judgement
Assess whether a contract with a customer exists for the Brévannes, Kervalo, Ostrevan and Valcourt arrangements.
Task 3Professional judgement
Identify the performance obligations of the Brévannes and Kervalo contracts.
1
Part 1 · Calculation
Identify the performance obligations of the Brévannes and Kervalo contracts.
units
units
Checks
0 / 2 steps entered
Amounts readable
Result: Number of performance obligations of the Kervalo contract
Task 4Calculation
Estimate the early acceptance bonus of the Kervalo contract.
1
Part 1 · Calculation
Estimate the early acceptance bonus of the Kervalo contract.
€
€
Checks
0 / 2 steps entered
Amounts readable
Result: Bonus estimated using the most likely amount
Task 5Professional judgement
Which estimation method applies and which part of the bonus is included in the transaction price?
1
Part 1 · Calculation
Which estimation method applies and which part of the bonus is included in the transaction price?
€
Checks
0 / 1 step entered
Amounts readable
Task 6Calculation
Determine the transaction price of the Kervalo contract after the amendment.
1
Part 1 · Calculation
Determine the transaction price of the Kervalo contract after the amendment.
€
€
Checks
0 / 2 steps entered
Amounts readable
Result: Transaction price of the Kervalo contract
Task 7Calculation
Analyse the Montclair deferred payment and determine the transaction price of the sale.
1
Part 1 · Calculation
Analyse the Montclair deferred payment and determine the transaction price of the sale.
€
€
Checks
0 / 2 steps entered
Amounts readable
Result: Transaction price of the Montclair sale
Task 8Calculation
Calculate the interest of the financing component and the Montclair receivable at the reporting date.
1
Part 1 · Calculation
Calculate the interest of the financing component and the Montclair receivable at the reporting date.
€
€
€
Checks
0 / 3 steps entered
Amounts readable
Result: Montclair receivable at 31 December 20X4
Task 9Calculation
Estimate the stand-alone selling prices and allocate the price of the Brévannes contract.
1
Part 1 · Calculation
Estimate the stand-alone selling prices and allocate the price of the Brévannes contract.
€
€
€
€
€
€
Checks
0 / 6 steps entered
Amounts readable
Result: Total allocated (check)
Task 10Professional judgement
Determine the timing of recognition, the treatment of the amendment and the principal or agent role.
Task 11Calculation
Calculate the revenue on the progress of the Brévannes and Kervalo contracts.
1
Part 1 · Calculation
Calculate the revenue on the progress of the Brévannes and Kervalo contracts.
€
€
€
€
Checks
0 / 4 steps entered
Amounts readable
Result: Kervalo contract revenue for 20X4
Task 12Calculation
Calculate the balance of each contract at the reporting date.
1
Part 1 · Calculation
Calculate the balance of each contract at the reporting date.
€
€
€
Checks
0 / 3 steps entered
Amounts readable
Result: Kervalo contract asset
Task 13Calculation
Calculate the platform revenue for the third-party suppliers parts.
1
Part 1 · Calculation
Calculate the platform revenue for the third-party suppliers parts.
€
Checks
0 / 1 step entered
Amounts readable
Task 14Calculation
Determine the costs of the Valcourt contract to be recognised as an asset.
1
Part 1 · Calculation
Determine the costs of the Valcourt contract to be recognised as an asset.
€
€
€
Checks
0 / 3 steps entered
Amounts readable
Result: Costs recognised as an expense
Task 15Journal entries
Record the entries of the file.
1
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.
AccountDescriptionDebitCredit
Line 1
Debit
Credit
Line 2
Debit
Credit
TotalsDebit0Credit0
2
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.
AccountDescriptionDebitCredit
Line 1
Debit
Credit
Line 2
Debit
Credit
TotalsDebit0Credit0
3
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.
AccountDescriptionDebitCredit
Line 1
Debit
Credit
Line 2
Debit
Credit
TotalsDebit0Credit0
4
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.
AccountDescriptionDebitCredit
Line 1
Debit
Credit
Line 2
Debit
Credit
TotalsDebit0Credit0
5
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.
AccountDescriptionDebitCredit
Line 1
Debit
Credit
Line 2
Debit
Credit
TotalsDebit0Credit0
6
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.
AccountDescriptionDebitCredit
Line 1
Debit
Credit
Line 2
Debit
Credit
TotalsDebit0Credit0
7
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.
AccountDescriptionDebitCredit
Line 1
Debit
Credit
Line 2
Debit
Credit
Line 3
Debit
Credit
TotalsDebit0Credit0
8
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.
AccountDescriptionDebitCredit
Line 1
Debit
Credit
Line 2
Debit
Credit
TotalsDebit0Credit0
Task 16Effects on the financial statements
What is the impact of the entries on the financial statements?
1
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
ItemIncreaseDecreaseNo effect
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Notes
2
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
€
€
€
Checks
0 / 3 steps entered
Amounts readable
Result: Amount of the effect — Equity
Task 17Analysis
Prepare the disaggregation of revenue, the contract balances and the remaining performance obligations.
1
Part 1 · Calculation
Prepare the disaggregation of revenue, the contract balances and the remaining performance obligations.
€
€
€
€
€
€
€
Checks
0 / 7 steps entered
Amounts readable
Result: Transaction price allocated to the remaining obligations
Task 18Professional judgement
Correct the draft note and list the disclosures.
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.