Reference no: EM133172116

Question - ABC Ltd manufactures phone handsets and provides telecommunication services to customers either directly to customers or via distributors. In July 20X1, the Board of Directors for ABC Ltd are unhappy that the company's draft Statement of Financial Position as at 30 June 20X1 was reflecting a decrease in the Owners Equity compared to the previous year. They are questioning whether the revenue for the period has been understated as a result of the recent changes to the revenue accounting standard AASB 15: Revenue from Contracts with Customers. They are particularly concerned about an amount of $1million that was received on 30 June 20X1 for services to be provided during the 12 months to 30 June 20X2 but has not been recognised as revenue for the year ended 30 June 20X1. 

Required - As the Financial Controller for ABC Ltd you have been asked to provide a brief statement to the Board (using your own words) that explains the process of recognising revenue in the financial statements and justifies why the $1 million received on 30 June 20X1 would not be recognised as revenue for the year ended 30 June 20X1. Your answer should be supported by references from the Australian Accounting Standards, or Conceptual Framework, including paragraph numbers where appropriate.