Exam 15: Revenue

Big Bank Limited provides Good Sport Pty Ltd with a five-year loan to finance the construction of a new sporting stadium. Good Sport had the choice of paying a market rate of interest (7.5% at the inception of the loan) or paying interest at a rate of 1.5% below the market rate, and paying in addition a fixed 'arrangement fee' of $200 000 to compensate Big Bank for charging an interest rate below the fair market value. Good Sport chose the second option. Big Bank should recognise revenue from the arrangement fee as:

House Proud Pty Ltd is operating a promotion selling furniture under the following conditions: Initial deposit of 20% of purchase price. Immediate delivery of furniture. Interest rate of 12.5%pa charged on the outstanding balance. Repayment of the balance (including the interest) over 24 equal monthly instalments. House Proud retains legal title to the furniture until the final monthly payment has been made. House Proud would recognise revenue as follows:

Deefer Limited sold an item of machinery on 1 July 2014 on the following terms: Initial payment of $25 000 Annual payments of $25 000 for 5 years (total $125 000). The buyers incremental rate of interest is 7.5% and the present value of the future annual payments is $101 147. At the time of sale of the machine Deefer would recognise revenue of: