Question

Kailee’s Cookery Pty Ltd sells ovens and access to online cooking classes. On 1 May 2020, Kailee’s Cookery Pty Ltd signs an agreement with Chef School to provide 15 weekly online cooking classes and five ovens. The contract price amounted to $66,000 (GST inclusive), on credit terms n/30 for the ovens and n/60 for the cooking classes. This amount also includes one free service of the oven to be performed six months after the delivery of the ovens to Chef School.

The stand-alone price for the 15 weekly online cooking classes is $33,000 (GST inclusive). The cooking classes will start on 18 May 2020.

The stand-alone price of the ovens is $55,000 (GST inclusive). The six-month service fee for the ovens is usually $1,100 (GST inclusive).

The ovens were delivered on 18 May 2020.

Chef School paid the full amount on 20 May 2020 for the ovens.

By 30 June 2020, 7 online cooking classes were delivered. Chef School has yet to make any payment for the online cooking classes.

Required:

With reference to AASB 15 Revenue from Contracts with Customers, apply the five-step process for revenue recognition in regards to the contract with Chef School. List each of the five steps and show any calculations.

Answer 1

Step 1 : identify the contract

step 2 : identify the performance obligation

i)cooking classes

ii)oven

iii)service fee of oven

step 3 : determine transaction price

$66000

step 4 : allocate transaction price towards performance obligation

	stand alone price	percentage	transaction price
cooking classes	$33000	37%	$24420 (66000*37%)
oven	$55000	62%	$40920 (66000*62%)
service fee	$1100	1%	$660 (66000*1%)
total	$89100	100%	$66000

step 5 : revenue recorded when performance obligation is satisfied

	first 3 month	next 3 month
revenue	$24420	nil
	$40920	nil
	$330 ($660/2)	$330