Kringle Company has agreed to provide services to North to South Ltd in exchange for a piece of equipment and a cash payment.The equipment is currently recorded in North to South's books at $73 000 but independent assessors have set the fair value at $65 000.The cash payment of $20 000 will be received 12 months after completion of the services.Kringle should record revenue as:

Question

Quizplus · Accepted Answer

According to IFRS 15, revenue should be recognized when control of goods or services is transferred to the customer at an amount that reflects the consideration to which the entity expects to be entitled. In this scenario, Kringle Company has provided services in exchange for a piece of equipment and a cash payment.

The fair value of the equipment is below the carrying amount recorded in North to South's books. As such, Kringle should record the revenue from the services rendered at the fair value of the equipment received, which is $65,000.

For the cash payment of $20,000, Kringle should use the present value of the cash component since it will be received in 12 months' time. Therefore, Kringle should record revenue of $65,000 plus the present value of the $20,000 cash component, which will be less than $20,000 due to time value of money.

Hence, the correct answer is D.

Kringle Company Has Agreed to Provide Services to North to South