Question

Romeo Inc sells white boards that are sold to schools. Each white board has a fixed price, f.o.b shipping point and payment is due 90 days after shipment. The schools can return a maximum of 15% of the order at their own expense. Sales are only made to schools, because they generally have great credit ratings. The normal return rate is 6% and the average collection period is 100 days. Romeo Inc follows IFRS. On July 16th, 2020 Romeo shipped white boards with a cost of $300,000 and included an invoice for $450,000. On August 30th, one school returned some white boards with an original invoice cost of $15,000. Romeo follows IFRS.
On July 16th, how much revenue should Romeo record as a result of the sale of white boards?

Answer 1

At the time of sale of White boards to a school for an invoice value of $ 450,000, Romeo Inc Should recognise only $ 423,000 as Revenue as there is a general trend of return of school boards by a % of 6% of the sales made.

So, 450000*6% = $ 27,000 should not be recognised as revenue until the return period has expired.

So, at the time of sale only $ 423,000 as to be recognised as revenue.

And as on August 30, the school returned $ 15,000 invoice cost boards. So, the remaining amount of $ 12,000(27000-15000) has to be recognised as revenue as the credit period was completed according to IFRS 15.