10.2.1 FINANCIAL ACCOUNTING 3: ASSIGNMENT 2 [100] QUESTION 1 PART A [30] Vintage Limited signed a contract with Timely Renovators (the customer) on the 1 June 2020. The terms of the contract included the following: Vintage Limited would supply and install a Victorian grand tub on the 1 July 2020 after which it would be required to supply and install an extractor fan in the bathroom The customer promised consideration of R25 000 payable by the 30th of September at the latest after both the bathtub and extractor fan are installed. The contract is cancellable in the event of non-performance The stand-alone selling prices for the supplied and fitted products are as follows: Bathtub R20 000 Extractor R5 000 Vintage Limited supply and install the bathtub on the 1st of July as agreed and the extractor on the 5th of August. Control over the bathtub and extractor passes to Timely Renovators on this day. Amount owing by Timely Renovators is paid over on the 25 September 2020. The managing director, Mr Cupboard, of Vintage Limited has recently joined the company after a long sabbatical. Unfortunately, he is not aware of new IFRS statement on revenue. He has requested you to help him with the following. REQUIRED: Write a memo to Mr Cupboard detailing the following: 1. Explain what the difference between income and revenue is in terms of IFRS15 (5) 2. What is the 5 step process to recognition and measurement with regard to revenue in terms of IFRS 15. (5) 3. Prepare the journal entries for the year ended 31st December 2020 in respect of the above transactions in the books of Vintage Limited. (12) 4. What five criteria must be met to ensure a contract exists? (5) 5. What is a wholly unperformed contract? (3) PART B [20] In 2018, Fuel & Go Limited introduced a loyalty programme for their customers. Every customer is rewarded one point for every R10 worth of purchases (irrespective of the type of purchase). Customers can redeem these points in the future for a R1 discount for every point on future purchases either in the convenience shop or for fuel purchases. During March 2019, customer purchases (both fuel and the convenience store) totalled R1 000 000 and earned 100 000 in points. The consideration is fixed and the stand-alone selling price of purchased books is R1 000 000. Past history indicates that 95 000 points will be redeemed. Fuel & Go Limited has estimated a stand-alone selling price of R0,95 per point on the basis that 95 000 points will be redeemed. Required: 1. Calculate the transaction price to be allocated to the performance obligations of Fuel & Go Limited and prepare the journal entry to record the March 2020 sales. (10) 2. Calculate and prepare the journal for revenue in respect of loyalty points to be recognised in March assuming the following: - At the end of March 2019, 50 000 points have been redeemed and Fuel & Go Limited still expects 95 000 points to be redeemed. (4) 3. Calculate and prepare the journal for revenue in respect of loyalty points to be recognised in March 2020 assuming the following: - At the end of March 2020, a further 20 000 points have been redeemed and Fuel & Go Limited now expects 97 000 points to be redeemed. (6)