Question

Retallick Ltd sells boats and provides mooring services to its customers. They usually sell the boats for $30,000 each and mooring services for $5,000 per year paid annually in advance. Furthermore they consider the boats and mooring services to be distinct and account for them as separate performance obligations. Retallick Ltd agrees to sell Coleman a boat and 1 year of mooring services on 1 July 2019 for $32,500. Finance is available from the local bank at 10% p.a. for customers wanting to borrow to finance the purchase. Required: For Retallick Ltd 1. Allocate the transaction price of $32,500 to the performance obligations 2. Prepare the journal entries on: a. 1 July 2019 b. 30 June 2020

Answer 1

1)

	Standalone price	Weights based on Standalone price	Allocation of transaction price
Revenue from sale fo Boats	30000	30000/35000= .85714	32500*.85714= 27857
Revenue from Mooring services	5000	5000/35000= .14286	32500*.14286= 4643
Total	35000		32500

2)

Date	Account title	Debit	credit
1 July 2019	cash	32500
	Sales revenue		27857
	Unearned service revenue		4643
30 June 2020	Unearned service revenue	2321.5
	Service revenue		2321.5

#Out of unearned service revenue of 4643 ,Revenue for the period (1July 2019-31Dec 2020 ) or 6months is earned in 2019 So revenue for remaining 6 months will be earned in 2020 (1Jan 2020-30June 2020) :4643*6/12 =2321.5 (rounded to 2322)