Question

A company sells mobile phone sets for $99 each. The company’s cost of each phone set is $70. The phone set became very popular with its customers. Near the end of the financial year, 5000 customers purchased the phone set from the company. The company allows its customers to return the phone set within 14 days if they have not unpacked the set. The return period has not expired for any phone set sold by the end of the year. The company expects, based on its past experience, that 1% of its customers will return the phone set.

Required: i) Prepare the journal entries in the books of the company to record the transaction.

ii) Explain why the transaction is recorded in this manner using NZ IFRS 15 requirements.

Answer 1

1)DR SALES 495000

CR CASH 490050(495000*99%)

CR RETURN PROVISION 4950(495000*1%)

2)

An entity can recognize revenue when performance obligations have been settled, a performance obligation has been settled when the customer has received all the benefits associated with the performance obligation, and is able to use and enjoy the asset to his or her own discretion.in this transaction company has a obiligation of giving price of return product price so the company obligation of it is not completed.