IFRS 15 Maths PDF [PDF]

Citation preview

IFRS – 15 (Illustrative Examples - General) 1.



Manual Company sells goods to Nolan Company during 2012. It offers Nolan the following rebates based on total sales to Nolan. If total Sales to Nolan are 10,000 units, it will grant a rebate of 2%. If it sells upto 20,000 units, it will grant a rebate of 4%. If it sells upto 30,000 units, it will grant a rebate of 6%. In the first quarter of the year, Manual sells 11,000 units to Nolan at a sales price of $110,000. Manual, based on past experience, has sold over 40,000 units to Nolan and these sales normally take place in the third quarter of the year. Prepare the journal entry to record the sale of the 11,000 units in the first quarter of the year.



2.



Travel Inc. sells tickets for a Caribbean cruise to Carmel Company employees. The total cruise package costs Carmel $70,000 from ShipAway cruise liner. Travel Inc. receives a commission of 6% of the total price. Travel Inc. therefore remits $65,800 to Shipway. Prepare the entry to record the revenue recognized by Travel Inc. on this transaction.



3.



Adani Inc. sells goods to Geo Company for $11,000 on January 2, 2012, with payment due in 12 months. The fair value of the goods at the date of sale is $10,000. Prepare the journal entry to record this transaction on January 2, 2012. How much total revenue should be recognized on this sale in 2012?



4.



Aamodt Music sold CDs to retailers and recorded sales revenue of $700,000. During 2012, retailers returned CDs to Aamodt and were granted credit of $78,000. Past experience indicates that the normal return rate is 15%. Prepare Aamodt’s entries to record (a) the $78,000 of returns and (b) estimated returns at December 31, 2008.



5.



Jansen Corp. shipped $20,000 of merchandise on consignment to Gooch Company. Jansen paid freight costs of $2,000. Gooch Company paid $500 for local advertising, which is reimbursable from Jansen. By year-end, 60% of the merchandise had been sold for $21,500. Gooch notified Jansen, retained a 10% commission, and remitted the cash due to Jansen. Prepare Jansen’s entry when the cash is received.



6.



Telephone Sellers Inc. sells prepaid telephone cards to customers. Telephone Sellers then pays the telecommunications company, TeleExpress, for the actual use of its telephone lines. Assume that Telephone Sellers sells $4,000 of prepaid cards in January 2012. It then pays TeleExpress based on usage, which turns out to be 50% in February, 30% in March, and 20% in April. The total payment by Telephone Sellers for TeleExpress lines over the 3 months is $3,000. Indicate how much income Telephone Sellers should recog-nize in January, February, March, and April.



7.



Jupiter Company sells goods on January 1 that have a cost of $500,000 to Danone Inc. for $700,000, with payment due in 1 year. The cash price for these goods is $610,000, with payment due in 30 days. If Danone paid immediately upon delivery, it would receive a cash discount of $10,000. Instructions: (a) Prepare the journal entry to record this transaction at the date of sale. (b) How much revenue should Jupiter report for the entire year?



8.



Shaw Company sells goods that cost $300,000 to Ricard Company for $410,000 on January 2, 2012. The sales price includes an installation fee, which is valued at $40,000. The fair value of the goods is $370,000. The installation is expected to take 6 months. Instructions: (a) Prepare the journal entry (if any) to record the sale on January 2, 2012. (b) Shaw prepares an income statement for the first quarter of 2012, ending on March 31, 2012. How much revenue should Shaw recognize related to its sale to Ricard?



9.



Presented below are three revenue recognition situations: (a) Grupo sells goods to MTN for $1,000,000, payment due at delivery. (b) Grupo sells goods on account to Grifols for $800,000, payment due in 30 days. (c) Grupo sells goods to Magnus for $500,000, payment due in two installments: the first installment payable in 6 months and the second payment due 3 months later. Instructions: Indicate how each of these transactions is reported. 10. Organic Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right to return to these products if not fully satisfied. The right of return extends for 4 months. Organic Growth sells these seeds on account for $15,00,000 on January 2, 2012. Companies are required to pay the full amount due by March 15, 2012. Instructions: (a) Prepare the journal entry for Organic Growth at January 2, 2012, assuming Organic Growth estimates returns of 20% based on prior experience.(Ignore cost of goods sold) (b) Assume that one customer returns the seeds on March 1, 2012, due to unsatisfactory performance. Prepare the journal entry to record this transaction, assuming this customer purchased $100,000 of seeds from Organic Growth. (c) Briefly describe the accounting for these sales, if Organic Growth is unable to reliably estimate returns. 11. On June 3, Hunt Company sold to Ann Mount merchandise having a sales price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day, Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $24, paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount. Instructions: (a) Prepare journal entries for Hunt Company to record all the events noted above under each of the following bases. (i) Sales and receivables are entered at gross selling price. (ii) Sales and receivables are entered net of cash discounts. (b) Prepare the journal entry under basis (2), assuming that Ann Mount did not remit payment until August 5. 12. On May 3, 2012, Eisler Company consigned 80 freezers, costing $500 each, to Remmers Company. The cost of shipping the freezers amounted to $840 and was paid by Eisler Company. On December 30, 2012, a report was received from the consignee, indicating that 40 freezers had been sold for $750 each. Remittance was made by the consignee for the amount due, after deducting a commission of 6%, advertising of $200, and total installation costs of $320 on the freezers sold. Instructions: (a) Compute the inventory value of the units unsold in the hands of the consignee. (b) Compute the profit for the consignor for the units sold. (c) Compute the amount of cash that will be remitted by the consignee.



Revenue from Construction Contract - Examples 1.



Turner, Inc. began work on a $7,000,000 contract in 2008 to construct an office building. During 2008, Turner, Inc. incurred costs of $1,715,000, billed its customers for $1,200,000, and collected $960,000. At December 31, 2008, the estimated future costs to complete the project total $3,185,000. Prepare Turner’s 2008 journal entries using the percentage-of-completion method.



2.



O’Neil, Inc. began work on a $7,000,000 contract in 2008 to construct an office building. O’Neil uses the percentage-of-completion method. At December 31, 2008, the balances in certain accounts were: Construction in Process $2,450,000; Accounts Receivable $240,000; and Billings on Construction in Process $1,200,000. Indicate how these accounts would be reported in O’Neil’s December 31, 2008, balance sheet.



3.



(Recognition of Profit on Long-Term Contracts) During 2007, Nilsen Company started a construction job with a contract price of $1,500,000. The job was completed in 2009. The following information is available. 2007 2008 2009 Costs incurred to date $400,000 $935,000 $1,070,000 Estimated costs to complete 600,000 165,000 0 Billing to date 300,000 900,000 1,500,000 Collections to date 270,000 810,000 1,425,000 Instructions: (a) Compute the amount of gross profit to be recognized each year. (b) Prepare all necessary journal entries for 2008.



4.



In 2007, Steinrotter Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Steinrotter uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2007, are shown below: Balance Sheet Accounts receivable—construction contract billings $21,500 Construction in process $65,000 Less: Contract billings 61,500 Cost of uncompleted contract in excess of billings 3,500 Income Statement Income (before tax) on the contract recognized in 2007



$18,200



Instructions: (a) How much cash was collected in 2007 on this contract? (b) What was the initial estimated total income before tax on this contract? 5.



(Recognition of Profit ,Percentage of Completion) During 2007, Nilsen Company agreed to construct a Building with a contract price of $1,000,000. The following information is available. 2007 2008 2009 Costs incurred to date $280,000 $600,000 $785,000 Estimated costs yet to be incurred 520,000 200,000 0 Customer billings to date 150,000 400,000 1,000,000 Collection of billing to date 120,000 320,000 940,000 Instructions: (a) (1) Compute the amount of gross profit to be recognized in 2007 and 2008, assuming the percentage-of completion method is used, and (2) Prepare all necessary journal entries for 2008 (b) For 2008, show how the details related to this construction contract would be disclosed on the balance sheet and on the income statement.



6.



(Recognition of Profit on Long-Term Contract) Shanahan Construction Company has entered into a contract beginning January 1, 2007, to build a parking complex. It has been estimated that the complex will cost $600,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $900,000. The following data pertain to the construction period.



Costs incurred to date Estimated costs to complete Progress billing to date Collections to date



2007 $270,000 330,000 270,000 240,000



2008 $420,000 180,000 550,000 500,000



2009 $600,000 0 900,000 900,000



Instructions: (a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. 7.



(Recognition of Profit and Entries on Long-Term Contract) On March 1, 2007, Chance Company entered into a contract to build an apartment building. It is estimated that the building will cost $2,000,000 and will take 3 years to complete. The contract price was $3,000,000. The following information pertains to the construction period. 2007 2008 2009 Costs incurred to date $600,000 $1,560,000 $2,100,000 Estimated costs to complete 1,400,000 390,000 0 Progress billing to date 1,050,000 2,100,000 3,000,000 Collections to date 950,000 1,950,000 2,750,000 Instructions: (a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. (b) Prepare all necessary journal entries for 2009. (c) Prepare a partial balance sheet for December 31, 2008.



8.



(Recognition of Profit and Balance Sheet Presentation, Percentage-of-Completion) On February 1, 2007, Hewitt Construction Company obtained a contract to build an athletic stadium. The stadium was to be built at a total cost of $5,400,000 and was scheduled for completion by September 1, 2009. One clause of the contract stated that Hewitt was to deduct $15,000 from the $6,600,000 billing price for each week that completion was delayed. Completion was delayed 6 weeks, which resulted in a $90,000 penalty. 2007 2008 2009 Costs incurred to date $1,782,000 $3,850,000 $5,500,000 Estimated costs to complete 3,618,000 1,650,000 0 Progress billing to date 1,200,000 3,100,000 6,510,000 Collections to date 1,000,000 2,800,000 6,510,000 Instructions: (a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during the year 2007 - 2009. (b) Prepare a partial balance sheet for December 31, 2008, showing the balances in the receivables and inventory accounts.



9.



(Long-Term Contract with Interim Loss) On March 1, 2007, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2009. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2007, 2008, and 2009 are given below. 2007 2008 2009 Contract costs incurred during the year $3,200,000 $2,600,000 $1,450,000 Estimated costs to complete the contract at December 31 3,200,000 1,450,000 0 Billing to Fabrik during the year 3,200,000 3,500,000 1,700,000 Instructions: Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2007, 2008, and 2009. (Ignore income taxes.)