Sailing New Company Limited operates in the shipping industry. They own a vessel named Sail NW2. On 1 March 2016, the Company entered into a contract with See the Continent Tourists to transport passengers from Lagos to and fro Abidjan for the next three years. The Company operates and maintains the ship. See the Continent Tourists cannot hire another operator for the ship. The vessel commenced a voyage on 1 May 2016 from Lagos to Abidjan and back. The voyage was completed on 30 June 2016. Sail NW carried 2,000 persons to and fro Abidjan. The passage money is ₦10,000 per person. Sailing New Company Limited prepares financial statements to 31 December every year.
Required:
i. How should the revenue be recognised in the financial statements?
ii. When should the revenue from this journey be recognised?
iii.Compute the revenue arising from this journey.
See a suggested solution to practice activity 15.6 here.
Suggested solution to practice activity 15.6
i. There is a non-lease element in the contract between Sailing New Company Limited and See the Continent Tourists. Revenue should be recognised as the Company satisfies the performance obligation by transferring control of a service (the voyage). A performance obligation is satisfied over time but as at 31 December 2016, the performance obligation is fully satisfied.
ii. Revenue should be recognised when the voyage was first completed from Lagos to Abidjan. Since another journey back to Lagos from Abidjan was completed on 30 June 2016, the revenue arising from both voyages should be accounted for in the statement of profit or loss for the year ended 31 December 2016.
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