Ch 9: TAX INVOICE, CREDIT AND DEBIT NOTES — Study Material & Test Yourself

1(a): TAX INVOICE, CREDIT AND DEBIT NOTES

5 Marks

Q TV released an advertisement in Deshabandhu, a vernacular daily. Instead of paying for the same, Q TV allowed Deshabandhu a free advertisement spot, which was duly utilised by Deshabandu. How revenue for these non-monetary transactions in the area of advertising will be recognized and measured?

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1(b): TAX INVOICE, CREDIT AND DEBIT NOTES

5 Marks

A Ltd. a telecommunication company, entered into an agreement with B Ltd. which is engaged in generation and supply of power. The agreement provided that A Ltd. will provide 1,00,000 minutes of talk time to employees of B Ltd. in exchange for getting power equivalent to 20,000 units. A Ltd. normally charges ₹ 0.50 per minute and B Ltd. charges ₹ 2.5 per unit. How should revenue be measured in this case?

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2(a): TAX INVOICE, CREDIT AND DEBIT NOTES

5 Marks

Company X enters into an agreement on 1st January, 20X1 with a customer for renovation of hospital and install new air-conditioners for total consideration of ₹ 50,00,000. The promised renovation service, including the installation of new air-conditioners is a single performance obligation satisfied over time. Total expected costs are ₹ 40,00,000 including ₹ 10,00,000 for the air conditioners. Company X determines that it acts as a principal in accordance with paragraphs B34-B38 of Ind AS 115 because it obtains control of the air conditioners before they are transferred to the customer. The customer obtains control of the air conditioners when they are delivered to the hospital premises. © The Institute of Chartered Accountants of India FINANCIAL REPORTING

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2(b): TAX INVOICE, CREDIT AND DEBIT NOTES

5 Marks

9.150 Company X uses an input method based on costs incurred to measure its progress towards complete satisfaction of the performance obligation. As at 31st March, 20X1, other costs incurred excluding the air conditioners are ₹ 6,00,000. Whether Company X should include cost of the air conditioners in measure of its progress of performance obligation? How should revenue be recognized for the year ended March 20X1?

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3(a): TAX INVOICE, CREDIT AND DEBIT NOTES

5 Marks

An entity G Ltd. enters into a contract with a customer P Ltd. for the sale of a machinery for ₹ 20,00,000. P Ltd. intends to use the said machinery to start a food processing unit. The food processing industry is highly competitive and P Ltd. has very little experience in the said industry. P Ltd. pays a non-refundable deposit of ₹ 1,00,000 at inception of the contract and enters into a long-term financing agreement with G Ltd. for the remaining 95 per cent of the agreed consideration which it intends to pay primarily from income derived from its food processing unit as it lacks any other major source of income. The financing arrangement is provided on a non-recourse basis, which means that if P Ltd. defaults then G Ltd. can repossess the machinery but cannot seek further compensation from P Ltd., even if the full value of the amount owed is not recovered from the machinery. The cost of the machinery for G Ltd. is ₹ 12,00,000. P Ltd. obtains control of the machinery at contract inception. When should G Ltd. recognize revenue from sale of machinery to P Ltd. in accordance with Ind AS 115?

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3(b): TAX INVOICE, CREDIT AND DEBIT NOTES

5 Marks

Entity I sells a piece of machinery to the customer for ₹ 2 million, payable in 90 days. Entity I is aware at contract inception that the customer might not pay the full contract price. Entity I estimates that the customer will pay atleast ₹ 1.75 million, which is sufficient to cover entity I's cost of sales (₹ 1.5 million) and which entity I is willing to accept because it wants to grow its presence in this market. Entity I has granted similar price concessions in comparable contracts. Entity I concludes that it is highly probable that it will collect ₹ 1.75 million, and such amount is not constrained under the variable consideration guidance. What is the transaction price in this arrangement?

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