Question

Samsung Ltd. signed a 5-year contract to supply its electronic products to Harvey Norman Ltd. for $300 million. The contract was completed and signed by both companies on the last day of financial year, 30 June 2020. The Samsung Ltd. received an upfront payment of only $60 million from Harvey Norman Ltd. on that day. It decided to recognise ‘revenue’ of $60 million for the financial year 2019/2020. Discuss fully how Samsung Ltd should account for the contract amount, justifying your answer by reference to relevant definition and recognition criteria of relevant accounting standards. You are required to answer the following two questions:

1)Discuss in your opinion whether it is correct for Samsung Ltd. to recognise ‘revenue’ of $300 million for the financial year 2019/2020 or not. You should justify your comments by using references to the Conceptual Framework for Financial Reportingor other relevant AASBs.

Answer 1

As per IFRS-15 there are following condiotion to recognie the revenue ;

1. Identify the customer contract
2. Identify the obligations in the customer contract
3. Determine the transaction price
4. Allocate the transaction price according to the performance obligations in the contract
5. Recognize revenue when the performance obligations are met

therefore,revenue of $60m can not be recognised in 2019/2020 as contract is signed on the last date of financial yr

According to relevant AASB, revenue should be recognised only when seller fullfill the obligation i.e will deliver the product.

hence, every year $60m should be recognised as revenue beginning from the year 2020/2021 for next 5 years.