Question

To increase the sales of its eggs, XYZ Ltd places one coupon on the side of each carton . Three coupons are redeemable for a premium consisting of a n adorable goat stuffed toy . In late 201 9 , XYZ purchases 40,000 toys at $ 1.80 each (which was recorded with a debit to “Premium Inventory ” ) In 20 20 , the company sells 45 0,000 boxes of eggs at $ 6 a carton . From its experience with other similar premium offers, XYZ estimates that 5 0% of the coupons issued will be mailed back for redemption. During 2020, 9,000, coupons are presented for redemption. Instructions: A) Assuming that XYZ follows ASPE, prepare the journal entries that should be recorded in 2020 relative to the sales and the premium plan assuming that XYZ follow the expense approach to account for this promotional program. B) Assuming that XYZ IFRS, prepare the journal entries that should be recorded in 2020 relative to the sales and premium plan assuming that XYZ follows the revenue approach to account for this promotional program. XYZ estimates that $0.80 of the $6 sale price relates to the hand puppet to be awarded.

Answer 1

Expense Approch

a.Revenue from sales of eggs (450000*$6)=$2700000

b.Total expenses for this Year ($72000*50%)=36000

c. Net of Expenses(a-b) =$2664000

journal Entries in the books of XYZ

1.Debit-Promotional Expense-$34000

credit - Bank -$34000

(BEing promotional Expense exp Incurred)

2. debit-Bank-$2664000

credit-Sales-$2664000

(Being sale of eggs)

Revenue Approch

a.Revenue from sale of eggs=$2700000

b.Expense =$72000

c.Revenue from sale(a-b)=$2628000

journal Entries in the books of XYZ

1.Debit-Promotional Expense-$72000

credit - Bank -$72000

(BEing promotional Expense exp Incurred)

2. debit-Bank-$2628000

credit-Sales-$2628000

(Being sale of eggs)