00:00:05
And so we go
00:00:07
again. My name is Tom Clendon and this
00:00:10
is a debrief of question for
00:00:15
Fuller. I've said this before and I'm
00:00:18
going to say it again. You're only going
00:00:21
to get the maximum benefit from engaging
00:00:25
with this video if you've already done
00:00:28
this question. done it to time so you
00:00:31
are familiar with the question and you
00:00:33
have an answer that you can hold up and
00:00:37
compare to mine and understand how I've
00:00:39
put my answer together. Okay? So if you
00:00:42
haven't done the question, stop the
00:00:45
video, go and do the question and come
00:00:48
back. But if you have done the question,
00:00:51
you'll know that it's a question four
00:00:53
that we're talking about and you win the
00:00:57
race on the final
00:00:58
lap. The vast majority of students,
00:01:02
rightly or wrongly, leave question four
00:01:05
to the end of the exam. You can't pass
00:01:08
this exam. It's not really feasible to
00:01:11
pass this exam if you're being marked
00:01:13
out of 75. It's impossible. All right.
00:01:16
you've you're going to therefore earn
00:01:18
the marks in the fourth question, the
00:01:21
last question that you do to get you
00:01:23
over the 50 marks. So, it's a really
00:01:26
important question and too often I read
00:01:29
in the examiner's reports that question
00:01:32
four is done badly, incompletely, and
00:01:36
the inferences that students have poorly
00:01:38
managed their time up until now.
00:01:43
Question four always has an element of
00:01:45
investor focus trying to put you in the
00:01:48
shoes of an investor so you can explain
00:01:51
things. Now this particular question
00:01:53
touches on revenue and touches on
00:01:56
intangible
00:01:58
assets.
00:02:00
Incidentally both
00:02:02
standards that in theory you studied
00:02:05
before SPR they were assumed knowledge.
00:02:09
they were covered at FR or maybe they
00:02:12
were covered as part of your degree. It
00:02:15
tells me, it shows me as if I didn't
00:02:18
know already that to pass this exam, you
00:02:21
have to know the basics. Yeah. You can't
00:02:26
just study pensions and foreign currency
00:02:29
and the SB unique stuff. You've got to
00:02:32
know the provisions and the impairment
00:02:35
and the goodwill and the intangibles and
00:02:37
the revenue because we've got a whole
00:02:39
question here. Yeah. On standards which
00:02:43
have an FR feel about
00:02:45
them. But what isn't FR is the
00:02:50
professional marks and the level at
00:02:52
which we are having to answer and apply
00:02:56
our knowledge. There are two
00:02:58
professional marks here and we'll talk
00:03:00
about that when we get there. Let's get
00:03:03
on with debriefing this
00:03:06
question. So, Fuller is a company that
00:03:09
operates an online food ordering
00:03:12
platform. I guess it's like the business
00:03:15
model of Just Eat or Deliveroo. My
00:03:18
daughter-in-law happens to work for Just
00:03:20
Eat, but I'm sure there are other
00:03:22
acceptable businesses out there. But
00:03:24
we're looking at Fuller. What I know is
00:03:27
really that we've got the 31st of
00:03:29
December X7. That is our accounting uh
00:03:33
date. We've got two exhibits. I have
00:03:36
already opened up the requirements. I
00:03:38
have already copy control pasted the
00:03:41
requirement into the word processing
00:03:44
area. You know my style by now. I can
00:03:48
see that the requirement of A is about
00:03:51
exhibit one. And I can see the
00:03:53
requirement of B is about exhibit two. I
00:03:57
don't need to read exhibit two. I can
00:04:00
get on with reading exhibit one and
00:04:03
begin to answer the question one thing
00:04:06
at a time. This is worth eight marks. If
00:04:09
it's worth eight marks, then it's
00:04:11
something in the order of 15
00:04:15
minutes. This is about revenue. Revenue
00:04:19
from contracts. We've got to explain how
00:04:22
Fuller should account for the revenue
00:04:23
from the
00:04:25
sale and delivery of Go Pizza food
00:04:31
ordered on the
00:04:33
platform.
00:04:34
Okay. So, Filler operates an online
00:04:37
ordering
00:04:39
platform. Uh, in August, when it's
00:04:42
August, during the accounting
00:04:45
period, we enter into a
00:04:48
contract with a pizza restaurant, Go
00:04:52
Pizza, and customers can make an order
00:04:55
using our website, and Fuller then
00:04:58
passes the order on to Go Pizza. When
00:05:01
the food is ready for delivery, it is
00:05:03
collected by Fuller's drivers. So Fuller
00:05:07
employs the drivers, doesn't make the
00:05:10
food, the food is made by the
00:05:12
restaurant. The customer is charged the
00:05:14
price of the
00:05:16
food plus a delivery fee. So the price
00:05:21
is
00:05:22
twofold. Yeah. Because two things are
00:05:24
happening. They're buying food and
00:05:26
they're getting it delivered. The
00:05:29
customer pays Fuller on our online
00:05:31
payment
00:05:33
system. Go Pizza sets the selling price
00:05:37
and what Fuller does is it gives the
00:05:40
restaurant 95% of the money that it
00:05:44
collects. 95% of the selling price of
00:05:48
the food.
00:05:51
Some customer though choose to collect
00:05:53
the order from the restaurant rather
00:05:56
than have it delivered in which case
00:05:58
they pay no delivery
00:06:01
fee. We've got a number and we've got a
00:06:05
number of 120,000 which has occurred in
00:06:08
that period since we've had the contract
00:06:11
and 21,000 relates to delivery fees.
00:06:16
there's two or three things buzzing in
00:06:19
my
00:06:21
mind. I'm not going to write out the
00:06:25
five pillars, the five steps associated
00:06:29
with revenue recognition. I'm
00:06:32
immediately picking up that there are
00:06:34
two separate
00:06:37
distinct performance obligations.
00:06:44
They are distinct because the separate
00:06:48
prices
00:06:52
um and some customers can buy the food
00:06:56
without the
00:07:01
delivery. That's one thing that's
00:07:03
buzzing in my head. The second thing is
00:07:05
about the timing of the revenue. Now, I
00:07:07
know it's a small point, but we're
00:07:09
delivering a product. It's
00:07:11
uncomplicated. So, we're going to
00:07:13
recognize the revenue at a point in time
00:07:16
which will be the the day of the
00:07:20
delivery. But am I answering the
00:07:23
question? Well, what is the question?
00:07:25
Explain how Fuller should account for
00:07:27
the revenue from the sale and the
00:07:31
delivery. So, let's have a look at what
00:07:34
is happening with the sale of the
00:07:38
food. I am fuller. I run a platform. I
00:07:43
don't run a kitchen. I am collecting
00:07:47
100% of the money from the sale of the
00:07:51
food. But I don't set the price of the
00:07:54
food. Yeah, it's go pizza that sets the
00:07:57
price of the food. It's go pizza that
00:08:01
has the restaurant. So I think I'm
00:08:05
acting here as an agent. Although I'm
00:08:07
receiving 100% of the revenue, I'm
00:08:10
really just earning a 5%
00:08:22
commission. I say we're earning 5%
00:08:25
commission because Fuller transfers 95%
00:08:28
of the selling price to go pizza of of
00:08:32
the food. Yeah. Of the food. So when it
00:08:35
comes to working out a number, we are
00:08:38
going to be earning
00:08:40
5%. Yeah. Now how much have we received
00:08:43
in total
00:08:44
um was 120. But strictly speaking, we
00:08:48
can't take 5% of 120,000 because 21,000
00:08:53
related to the delivery fees. Yeah. So
00:08:58
it's actually based 5% on the
00:09:01
99,000 and 5% of 99,000 is
00:09:05
4,950. So we have got revenue in respect
00:09:08
of the sale of
00:09:10
food but there's two distinct
00:09:12
performance obligations. There's the
00:09:15
sale of the food and then there's the
00:09:17
delivery. Now who does the delivery? Is
00:09:20
it the restaurant or is it us? No, it is
00:09:23
us. It is collected by Fuller's delivery
00:09:28
drivers. So Fuller is the
00:09:33
principle. Yeah. Not the agent, but it's
00:09:36
the
00:09:37
principle when it comes to the delivery
00:09:43
fees. It is entitled to 100% therefore
00:09:48
of that revenue.
00:09:50
It's entitled to
00:09:52
100% of the
00:09:55
monies
00:09:56
collected for delivery because there's
00:09:59
nothing to do with the nothing to do
00:10:01
with the restaurant. How much is that? I
00:10:04
think that was
00:10:06
$21,000. Yeah, that's related to the
00:10:09
delivery fees. Okay, so here I am. I am
00:10:14
trying to be aggressive. I'm trying to
00:10:17
be direct. I'm trying to be
00:10:20
realistic and I
00:10:22
am answering the question as a good
00:10:26
student I think should trying to put an
00:10:29
answer together. Is this answer worth
00:10:32
eight out of eight? Probably not. Yeah,
00:10:35
but this is I believe technically
00:10:37
correct a prizewinning answer done
00:10:40
within the time
00:10:41
allowed and I need to keep
00:10:46
moving because there is a story about
00:10:49
vouchers and there is a story about yeah
00:10:54
part B of the question or a part two of
00:10:57
the question which is worth five marks.
00:10:59
Explain the accounting
00:11:02
implications if any. That's interesting.
00:11:05
If any, when vouchers are issued to
00:11:10
customers and when the vouchers are used
00:11:14
by
00:11:15
customers. So what are these
00:11:18
vouchers? Fuller wants an incentive for
00:11:20
customers to use Fuller food rather than
00:11:25
competition.
00:11:26
As such, it's
00:11:29
considering giving each of its
00:11:31
registered customers a voucher for free
00:11:34
delivery on their next order. That's
00:11:37
what it's considering doing. If it goes
00:11:39
ahead with this, they'll be emailed out
00:11:42
next year and they'll be valid for a
00:11:44
year. Fuller would bear the cost. Okay.
00:11:48
I think I remember teaching something
00:11:51
like
00:11:52
this. Yeah. And this is like kind of air
00:11:56
miles, isn't it? You're selling
00:11:57
something and there's two performance
00:12:04
obligations. How many marks do you think
00:12:06
that's
00:12:07
worth?
00:12:10
Um, I'm afraid I think that's worth
00:12:13
nothing because I'm barking up the wrong
00:12:17
tree. You see, there isn't a sale. We're
00:12:21
just giving them away, aren't we?
00:12:25
Um, so instead of saying where there is
00:12:27
a sale,
00:12:31
it's if there was a
00:12:34
sale, if there was a sale with a voucher
00:12:37
of Yeah, that's But that's not the case.
00:12:40
It's not the case here. We're giving
00:12:41
something away. I don't think there's a
00:12:45
contract. I don't think there's a
00:12:47
contract going on here. I have to
00:12:51
think what happens when these vouchers
00:12:54
are
00:12:56
issued to customers if I'm trying to
00:12:59
answer the question. Yeah. What happens
00:13:02
when the vouchers are issued?
00:13:05
Nothing. Nothing. Yeah. There's no
00:13:08
contract when you give something away.
00:13:10
Contracts require consideration. Yeah.
00:13:14
The vouchers are issued for free.
00:13:21
To me, there's no accounting. There's no
00:13:23
double entry. There's no uh there's no
00:13:27
obligation. There's no obligation for
00:13:29
the customer to use the
00:13:31
vouchers. We can't recognize a
00:13:34
liability. We can't recognize. Yeah.
00:13:36
There's no obligation or revenue. So,
00:13:38
it's a little bit of a damp squib.
00:13:40
Nothing's happening. What happens when
00:13:43
the vouchers are used by the customers?
00:13:48
Well, what does the voucher? Does it
00:13:50
give them money
00:13:52
off? No, it gives them a free delivery.
00:13:58
So, they get 100%
00:14:01
off. So, it means the revenue we are
00:14:05
making is
00:14:06
zero. Yeah.
00:14:13
So that's what happens when the vouchers
00:14:16
are used by the
00:14:18
customer. Yeah. We don't get any money.
00:14:21
So we take the voucher off the revenue.
00:14:23
The revenue is nil. So
00:14:28
look, that's the answer. That's my
00:14:31
answer. You've got access to a a better
00:14:35
answer, a fuller answer, a more polished
00:14:38
answer. But in the time and under the
00:14:41
pressure, this is a really good answer
00:14:45
for a student to be coming up with.
00:14:47
Yeah, that would get you I don't know I
00:14:50
four marks. Not a problem. Not a
00:14:53
problem. And I move. I have to keep
00:14:56
moving. You have to keep moving. This is
00:15:00
a the the enemy is the time. It's not
00:15:02
the examiner. It's not the exam. It's
00:15:05
not necessarily even the knowledge that
00:15:07
you have. It's getting something down.
00:15:10
Now, we've got a second exhibit here,
00:15:13
and this relates to a different
00:15:15
requirement. Using exhibit 2, in
00:15:18
accordance with ISA 38, explain how the
00:15:22
technology and data held by Fuller
00:15:26
should be accounted for in the financial
00:15:30
statements and discuss. So that lovely
00:15:33
key word and that lovely keyword and
00:15:38
discuss whether the accounting treatment
00:15:40
provides its investors with useful
00:15:45
information. So we've got two things I
00:15:48
think happening here. Um, we've got to
00:15:51
explain how technology and data is going
00:15:55
to be accounted
00:15:56
for and we're also going to
00:16:00
discuss yeah whether it provides useful
00:16:04
information and I suppose as a rule of
00:16:06
thumb I'm going to say it's you know
00:16:08
five marks
00:16:10
each. Yeah. If you write nothing, you
00:16:13
get no marks. And the professional marks
00:16:16
are going to be if it's kind of
00:16:17
polished, if it's complete, if it's
00:16:20
considered, if it's structured, and
00:16:22
we've got some practical information
00:16:24
because it's explain how the technology
00:16:27
and data held by Fuller. So that's why
00:16:30
we've got the information now. They've
00:16:33
invested in technology which collects
00:16:35
data.
00:16:38
Um the artificial intelligence is being
00:16:41
used.
00:16:43
Uh it uses information robust
00:16:47
systems. They've got some fancy
00:16:49
computers. They've got a website.
00:16:51
They've got an app. They're using AI.
00:16:54
They've got a database of customers
00:16:56
names. They've got an understanding of
00:16:59
information. Now we have
00:17:02
paid 820,000 for some software.
00:17:07
So, we have paid
00:17:08
820,000 for some software. That's a very
00:17:11
specific sum of money for a very
00:17:13
specific thing. And we have
00:17:17
also yeah
00:17:19
paid some more money for some
00:17:23
algorithms, which is just another word
00:17:25
for saying software. So, I don't
00:17:27
actually see there's much of a
00:17:28
distinction
00:17:30
um between those two statements.
00:17:33
We also employ staff, computer guys,
00:17:37
computer girls. Yeah. Who end up uh
00:17:41
working on this and we pay them
00:17:44
630,000. Now what they do is massive
00:17:49
improvements and they significantly
00:17:53
uh the benefit that they give
00:17:55
significantly improves. Right. Five
00:17:58
marks.
00:18:00
explain how
00:18:03
the technology and data is dealt with.
00:18:06
Well, the money we've spent on these two
00:18:09
is straightforward capitalization, isn't
00:18:17
it? So, to me, that's quite
00:18:19
straightforward. Yeah. Um, what's
00:18:22
perhaps a little bit more subjective or
00:18:24
a little bit more judgmental is the
00:18:27
staff cost of 630. Now, these are
00:18:31
improving, they're refining, they're
00:18:33
improving the intangible asset
00:18:35
subsequent expenditure. Um, and there's
00:18:38
a clear economic benefit because the
00:18:40
value significantly exceeds the amount.
00:18:43
So, we've got a reliable measure. I'm
00:18:45
happy to capitalize this. It's
00:18:47
relatively rare, but I'm happy to
00:18:49
capitalize
00:18:54
this. Please don't write pirate. Please
00:18:58
don't go on and on and on about the
00:19:00
criteria. Please come to a swift
00:19:02
conclusion that you
00:19:05
justify. Yeah, you're not getting marks
00:19:07
for regurgitating theory. It's
00:19:10
application, application,
00:19:12
application. Now, we are having to uh
00:19:16
explain how the technology is going to
00:19:18
be dealt with. So, we've said it's going
00:19:20
to be an asset, but it will also be
00:19:24
amotized. Yeah. over its useful economic
00:19:29
life. It'll be amotized over its useful
00:19:32
economic life unless it is deemed yeah
00:19:36
to have a indefinite life. Unless it is
00:19:40
deemed to have an indefinite life and
00:19:43
that is not is not clear to me what um
00:19:48
you I haven't got evidence on that. It
00:19:49
doesn't give me a number of years or
00:19:51
whatever. Um you also
00:19:54
uh cannot revalue such intangible
00:19:57
assets. You cannot revalue
00:20:00
uh such intangible
00:20:03
assets as they don't have an open market
00:20:07
value. So a little bit of knowledge
00:20:09
coming in there as they don't have an
00:20:11
open market value. So yeah, I don't
00:20:14
know. Look, it's five marks. I've said
00:20:16
five things. I'm happy to move on
00:20:19
because I also want to discuss a little
00:20:23
bit about uh whether the accounting
00:20:25
treatment of Fuller's technology and
00:20:29
data provides investors with useful
00:20:32
information. Now I've got to break that
00:20:33
down into two. Yeah. Um useful
00:20:37
information is predictive. Useful
00:20:40
information is information that is
00:20:45
predictive. Yeah. and
00:20:47
users want to know about the
00:20:53
future. So what do we think? Yeah. What
00:20:55
do we what what am I going to say? Well,
00:20:58
this is again an answer rather than the
00:21:01
answer. What we're doing with this
00:21:03
technology is we're potentially
00:21:04
amotizing it. We're potentially
00:21:07
systematically writing it off. We're
00:21:09
measuring the cost of the
00:21:11
asset. Yeah. rather than capturing its
00:21:15
value. And I think there is a limit to
00:21:18
the usefulness of the information there
00:21:21
because the more these platforms get
00:21:23
used, ironically, the bigger value they
00:21:27
have because they become more
00:21:30
famous. And that's the opposite as to
00:21:33
how you think of PPE. Think of PPE, you
00:21:36
amotize PPE over its life. You write it
00:21:39
off. It's a problem.
00:21:44
We're discussing
00:21:47
for five marks whether use whether what
00:21:51
Fuller does is useful information. Now
00:21:54
useful information is partly about
00:21:57
relevant but it's also partly about
00:22:00
faithful
00:22:02
representation. You've got to know your
00:22:04
framework. You've got to know this. This
00:22:07
is not uh rocket science. And then you
00:22:10
got to think you know useful
00:22:14
information is faithfully represented is
00:22:17
information which is faithfully
00:22:19
represented yeah to the
00:22:22
users i.e. is
00:22:25
complete. Now I would argue that we've
00:22:29
got something here which is
00:22:31
incomplete. We're talking about customer
00:22:34
data aren't we? Yeah we're talking about
00:22:36
customer data. the data, right, that it
00:22:41
that it collects on its
00:22:44
customers. And if you think about it,
00:22:46
that's a really valuable important piece
00:22:49
of information because you can then
00:22:50
market to those people who've existing
00:22:53
who are existing
00:22:54
customers. But you are prohibited under
00:22:57
ISA 38 from specifically recognizing
00:23:02
those customer lists, that database as
00:23:06
an intangible asset. You can on
00:23:08
acquisition on acquisition of a sub you
00:23:10
can determine its fair value and bring
00:23:12
it in as a fair value adjustment but
00:23:14
you're not allowed to recognize customer
00:23:23
lists. And to me this means the accounts
00:23:26
are
00:23:28
incomplete. Yeah. And because they're
00:23:30
incomplete Yeah. It limits the
00:23:34
usefulness of the uh limits the
00:23:38
usefulness of the financial
00:23:41
statements and it's all the fault of ISA
00:23:44
38. It's all the fault of ISA 38. So in
00:23:48
conclusion, we need yeah narrative
00:23:53
disclosures as to the attitudes and uh
00:23:57
what's happening with our intellectual
00:23:59
property. We need these disclosures. Who
00:24:03
needs them? Investors need them. Let's
00:24:05
let's, you know, let's make sure we're
00:24:06
focused on answering the question and
00:24:08
relating it to investors. Investors,
00:24:11
yeah, need narrative disclosures. Now,
00:24:14
those narrative disclosures could be
00:24:16
found in the management
00:24:18
commentary. Yeah. Um or they could be
00:24:20
found in the um integrated report. Okay.
00:24:26
which is a a voluntary uh disclosure
00:24:29
that can be made. Um I'm going to
00:24:33
end with a relatively famous statement,
00:24:38
famous perhaps more amongst academics
00:24:40
and lecturers rather than
00:24:43
students. But that
00:24:47
ISA38 is an analog standard. It was
00:24:51
written in the previous century. It was
00:24:54
written in the previous millennium. It's
00:24:56
an analog standard for a digital age.
00:25:01
And if it's an analog standard for a
00:25:03
digital
00:25:05
age, it is effectively not fit for
00:25:10
purpose. It just it just doesn't
00:25:13
anticipate, it just doesn't deal with
00:25:16
the the rise of technology
00:25:19
um and dealing with, you know, companies
00:25:21
like Uber, which is a taxi company, but
00:25:23
doesn't own any taxes.
00:25:26
Airbnb is a landlord that doesn't own
00:25:28
any properties and just doesn't have any
00:25:31
restaurants, but it just can't cope with
00:25:33
it. It doesn't really it's not really
00:25:36
fit for purpose. So, look,
00:25:39
um you have access to the full answer,
00:25:43
the official
00:25:45
um ACCA
00:25:48
answer. Please read it because it's
00:25:51
better than mine. You're going to learn
00:25:53
more about it. I'm approaching this not
00:25:56
to give you a perfect answer, but I'm
00:25:58
approaching this in a real way, in an
00:26:00
applied way to show you what can be done
00:26:04
to earn the marks. Yeah. Look at the use
00:26:07
of headings. Look how we break it down.
00:26:10
Yeah. We break useful information down
00:26:12
between things which are predictive and
00:26:15
things which have a faithful
00:26:16
representation. We don't sweat over
00:26:19
spelling. It is clear though what I am
00:26:21
trying to do. Yeah. Um, onwards and
00:26:28
upwards. So, I hope you found that
00:26:30
debrief of Fuller useful. Bit rough, bit
00:26:33
ready, but this is life. Yeah, there are
00:26:37
debriefs of the other questions in this
00:26:40
mock that you can find. My name is Tom
00:26:43
Clendon and my Razondetra, my mission is
00:26:47
to help students pass SPR. Can I wish
00:26:51
you the very best of luck although of
00:26:53
course you shouldn't be relying on luck.
00:26:56
You are doing the right thing doing
00:26:58
these mock exams doing these questions
00:27:01
to time. That's the ideal
00:27:03
preparation. All the best.
![Alessandro il Grande - Alessandro Barbero [Esclusivo] (2021)](https://ruhnrawpgxrzdrgaohnf.supabase.co/storage/v1/object/public/images/video/JIVhIHom0-E/thumbnail.jpg)
