Multiple advances and multiple deliveries of goods

This is an example presented in IFRIC 22 Foreign Currency Transactions and Advance Consideration.

These examples accompany, but are not part of, IFRIC 22.

In these examples, foreign currency amounts are ‘Foreign Currency’ (FC) and functional currency amounts are ‘Local Currency’ (LC).

The objective of these examples is to illustrate how an entity determines the date of the transaction when it recognises a non-monetary asset or non-monetary liability arising from advance consideration in a foreign currency before it recognises the related asset, expense or income (or part of it) applying relevant IFRSs.

Example 4—Multiple receipts for revenue recognised at multiple points in time

IE16 On 1 January 20X4, Entity D enters into a contract to sell two products to a customer. Entity D transfers one product on 1 March 20X4 and the second on 1 June 20X4. As required by the contract, the customer pays a fixed purchase price of FC1,000, of which FC200 is due and received in advance on 31 January 20X4 and the balance is due and received on 1 June 20X4.

The following facts are relevant:

  1. applying AASB 15, Entity D allocates FC450 of the transaction price to the first product and FC550 to the second product.
  2. Entity D has determined that, for this contract, the consideration of FC200 received on 31 January 20X4 relates to the first product transferred on 1 March 20X4. On transfer of that product to the customer, Entity D has an unconditional right to FC250 of the remaining consideration.

The spot exchange rates are:

DateSpot exchange rate FC:LC
31 January 20X41 : 1.50
1 March 20X41 : 1.70
1 June 20X41 : 1.90

The following journal entries illustrate how Entity D accounts for the foreign currency aspects of the contract:

(a) Entity D receives the advance payment of FC200 on 31 January 20X4, which it translates into its functional currency using the exchange rate at 31 January 20X4.

FCFCLCLC
Dr Cash200300
Cr Contract liability200300

(b) Applying paragraph 23(b) of AASB 121, Entity D does not update the translated amount of the non-monetary contract liability.

(c) Entity D transfers the first product with a transaction price of FC450 on 1 March 20X4. Entity D derecognises the contract liability and recognises revenue of LC300. Entity D recognises the remaining revenue of FC250 relating to the first product and a corresponding receivable, both of which it translates at the exchange rate at the date that it initially recognises the remaining revenue of FC250, ie 1 March 20X4.

FCFCLCLC
Dr Contract liability200300
Dr Receivable250425
Cr Revenue450725

(d) The receivable of FC250 is a monetary item. Entity D updates the translated amount of the receivable until the receivable is settled (1 June 20X4). At 1 June 20X4, the receivable of FC250 is equivalent to LC475. As required by paragraph 28 of IAS 21 Entity D recognises an exchange gain of LC50 in profit or loss.

FCFCLCLC
Dr Receivable50
Cr Foreign exchange gain50

(e) Entity D transfers the second product with a transaction price of FC550 on 1 June 20X4. Entity D recognises revenue of FC550 using the exchange rate at the date of the transaction, which is the date that Entity D first recognises this part of the transaction in its financial statements, ie 1 June 20X4.

(f) Entity D also receives the remaining consideration of FC800 on 1 June 20X4. FC250 of the consideration received settles the receivable of FC250 arising on the transfer of the first product. Entity D translates the cash at the exchange rate at 1 June 20X4.

FCFCLCLC
Dr Cash8001,520
Cr Receivable250475
Cr Revenue5501,045