Practice Activity 13.4 Probability that a reporting entity will collect the consideration from a cu

Practice Activity 13.4 Probability that a reporting entity will collect the consideration from a customer

The facts are the same as Practice Activity 13.3 https://excellentvaluebanner.wixsite.com/my-site/post/practice-activity-13-3-ifrs-15-criteria-when-accounting-for-a-contract-with-a-customer

Give reasons why it is probable or not that Solid Structures Limited will collect the consideration from the customer?

See a suggested answer to practice activity 13.4 here.

Suggested answer to practice activity 13.4

It is probable that Solid Structures Limited will collect the consideration for the following reasons:

i. The customer intends to repay the 25 percent outstanding from the cash inflows derived from the business of contemporary music education. The customer is experienced in contemporary music education. Also, this form of education is in high demand. Therefore, the ability of the customer to generate cash inflows from contemporary music education is not in doubt.

ii. In case it is not possible to repay the loan from cash inflows within one year of relocating the contemporary music school, the customer has other assets that could be used to repay the loan.

iii.The customer’s liability is not limited because the loan can be paid from the cash inflows generated by the business within one year of relocation to the building, or from the net assets of the business of contemporary music education.