Practice Activity 13.6 Probability that an entity will collect the consideration from the customer i

Practice Activity 13.6 Probability that an entity will collect the consideration from the customer in a contract

The facts are the same as Practice Activity 13.5.

Give reasons why it is probable or not that Steady Limited will collect the consideration from the Government?

See a suggested answer to practice activity 13.6 here.

Suggested answer to practice activity 13.6

It is not probable that Steady Limited will collect the consideration for the following reasons:

i. The customer intends to repay the outstanding of ₦665,900 from the cash inflows derived from the fees charged to tanker owners for parking their tankers in the terminal. If the government is unable to pay the amount due to the lack of enforcement to ensure that tanker drivers park in the terminal, the expectation of the government to generate income of

₦665,900 in two years may not materialise.

ii. There are no assets that can be used to repay the outstanding.

iii.The customer’s liability is limited because the loan can only be paid from the cash inflows generated in the first year operation of the tanker terminal. In the event that the loan is not paid, Steady Limited is entitled to receive 1 percent of the outstanding amount of ₦665,900.