On 10 January 20X2, Grey Dog Limited signed a contract to supply a customer with 1000 baskets. The contract stipulated: - a selling price of C300 per unit; and - a due date for full and final settlement of 10 February 202. Although Grey Dog Limited delivered all baskets to the customer on 31 March 20X2, the customer had not yet made any payments by 30 June 202, being Grey Dog's financial year end. Required: a) Define the terms 'contract asset', 'receivable' and 'contract liability' and identify the essential difference between each of these terms. b) List the steps to be followed before revenue may be recognised in terms of IFRS 15 Revenue from contracts with customers and apply them to the widget contract. c) Show all necessary journals, together with a brief explanation as to how Grey Dog Limited should account for the information above, assuming: i) the contract is cancellable. ii) the contract is non-cancellable. Ignore loss allowances Matthew Limited manufactures specialised plant and equipment for various customers. On 15 October 20X0, Matthew Limited entered into an agreement with Luke to design and construct a unique plumbing system, which Luke will then be installing into a unique off-grid property commonly called an 'earthship'. The contract meets all the necessary requirements to be considered a 'contract with a customer' in terms of IFRS 15 Revenue from contracts with customers. The contract price was set at C1 540000. Chapter 4 27 GAAP: Graded Questions Revenue from contracts with customers The following is a summary of events: - 1 December 200 - design phase complete - 2 January 201 - manufacturing complete - 3 January 201 - inspection by the council reveals that the plumbing system does not meet strict health and safety specifications. Matthew Limited commences work to rectify issues identified on the same date. - 8 January 201 - follow-up inspection reveals that the system now meets the health and safety specifications. On the same date, Matthew Limited signs the paperwork transferring legal title. All amounts due were settled on this date. Due to delays in the construction of the plumbing system, Luke requested Matthew Limited retain the plumbing system for a few more days as Luke was now working on another part of the earthship with the result that it was now currently inconvenient to take delivery. - Matthew Limited has agreed to store the system in a secure storage area on its premises. - This storage area is dedicated to storing completed products awaiting customer collection. - Matthew Limited normally charges monthly storage fees of C10 000, but since Luke is a long-standing and valuable customer, it agreed to waive these fees. Required: a) Determine (with appropriate discussion) the number of performance obligations in the original agreement between Matthew Limited and Luke. b) Explain, using the 5-step process in IFRS 15, how Matthew Limited should account for this contract in its financial statements for the year end.

1. On 10 January 20X2, Grey Dog Limited signed a contract to supply a customer with 1000
baskets. The contract stipulated: - a selling price of C300 per unit; and - a due date for full and
final settlement of 10 February 202. Although Grey Dog Limited delivered all baskets to the
customer on 31 March 20X2, the customer had not yet made any payments by 30 June 202,
being Grey Dog's financial year end. Required: a) Define the terms 'contract asset', 'receivable'
and 'contract liability' and identify the essential difference between each of these terms. b) List
the steps to be followed before revenue may be recognised in terms of IFRS 15 Revenue from
contracts with customers and apply them to the widget contract. c) Show all necessary journals,
together with a brief explanation as to how Grey Dog Limited should account for the information
above, assuming: i) the contract is cancellable. ii) the contract is non-cancellable. Ignore loss
allowances
Matthew Limited manufactures specialised plant and equipment for various customers. On 15
October 20X0, Matthew Limited entered into an agreement with Luke to design and construct a
unique plumbing system, which Luke will then be installing into a unique off-grid property
commonly called an 'earthship'. The contract meets all the necessary requirements to be
considered a 'contract with a customer' in terms of IFRS 15 Revenue from contracts with
customers. The contract price was set at C1 540000. Chapter 4 27 GAAP: Graded Questions
Revenue from contracts with customers The following is a summary of events: - 1 December
200 - design phase complete - 2 January 201 - manufacturing complete - 3 January 201 -
inspection by the council reveals that the plumbing system does not meet strict health and safety
specifications. Matthew Limited commences work to rectify issues identified on the same date. -
8 January 201 - follow-up inspection reveals that the system now meets the health and safety
specifications. On the same date, Matthew Limited signs the paperwork transferring legal title.
All amounts due were settled on this date. Due to delays in the construction of the plumbing
system, Luke requested Matthew Limited retain the plumbing system for a few more days as
Luke was now working on another part of the earthship with the result that it was now currently
inconvenient to take delivery. - Matthew Limited has agreed to store the system in a secure
storage area on its premises. - This storage area is dedicated to storing completed products
awaiting customer collection. - Matthew Limited normally charges monthly storage fees of C10
000, but since Luke is a long-standing and valuable customer, it agreed to waive these fees.
Required: a) Determine (with appropriate discussion) the number of performance obligations in
the original agreement between Matthew Limited and Luke. b) Explain, using the 5-step process

2. in IFRS 15, how Matthew Limited should account for this contract in its financial statements for
the year ended 28 February 201. c) Explain how your answer to (b) would change if Luke
requested Matthew Limited to store the plant for a 6-month period ending 30 June 201 (i.e. not
just for a few days). Ignore loss allowances