Excillibur Limited (Excillibur) is a supplier of software. They can install the software if required by customers and also have the capability of providing maintenance services to their customers. Their two year maintenance programme is highly in demand by all their customers. Excillibur signed a sale contract with Raindrops Limited (Raindrops) on 15 January 2015 for an amount of N$2 800 000. The sale agreement involves Excillibur providing software, successfully installing the software at Raindrops and providing maintenance services for two years to Raindrops. The software was physically delivered to Raindrops on 31 January 2015.The installation of the software was successfully completed over the weekend of 31 January and 1 February 2015. The stand-alone prices of the components of the contract are as follows: Software N$ 650 000 Installation of software N$ 840 000 2 year Maintenance services N$2010 000 Raindrops paid 50% of the N$3 500 000 after the completion of the installation, and will pay 25% at the end of December 2015 and 25% at the end of December 2016. The contract does contain a significant financing component but the effect of the financing component is not material. REQUIRED TO: a) EXPLAIN how Excillibur Limited should measure the contract with Raindrops Limited for the year ended 31 December 2015 in terms of IFRS 15, Revenue from contracts with customers.
QUESTION 1
Excillibur Limited (Excillibur) is a supplier of software. They can install the software if required by customers and also have the capability of providing maintenance services to their customers. Their two year maintenance programme is highly in demand by all their customers.
Excillibur signed a sale contract with Raindrops Limited (Raindrops) on 15 January 2015 for an amount of N$2 800 000. The sale agreement involves Excillibur providing software, successfully installing the software at Raindrops and providing maintenance services for two years to Raindrops.
The software was physically delivered to Raindrops on 31 January 2015.The installation of the software was successfully completed over the weekend of 31 January and 1 February 2015.
The stand-alone prices of the components of the contract are as follows:
- Software N$ 650 000
- Installation of software N$ 840 000
- 2 year Maintenance services N$2010 000
Raindrops paid 50% of the N$3 500 000 after the completion of the installation, and will pay 25% at the end of December 2015 and 25% at the end of December 2016.
The contract does contain a significant financing component but the effect of the financing component is not material.
REQUIRED TO:
- a) EXPLAIN how Excillibur Limited should measure the contract with Raindrops Limited for the year ended 31 December 2015 in terms of IFRS 15, Revenue from contracts with customers.
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