3.1 Situation 1: Assuming the company follows IFRS, illustrate the five steps in the revenue recognition process for Ambrosia Corporation: (5 marks)

On December 31, 2019, Ambrosia Company sells manufacturing equipment to Lemon Inc. for $30,000 cash. Ambrosia's selling price is more that the competition because Ambrosia includes a five-year warranty plan with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2019. Ambrosia estimates the stand-alone prices to be $26,000 for the equipment and $4,000 for the warranty.Ambrosia's cost for the equipment was $17,000.

1. Identify the contract with customers.2. Identify the separate performance obligations in the contract.3. Determine the (total) transaction price00 4. Allocate the transaction price to the separate performance obligations 5. Recognize revenue when each performance obligation is satisfied. Prepare the journal entry to record the sale on December 31, 2019.Assume the company uses a perpetual inventory system.

3.2 Situation 2:Envy Inc. an online shoe retailer, has a return policy that allows customers to return merchandise in unused condition for a full refund within 60 days of purchase.Envy knows from past experience that about 12% of sales are consistently returned.(2 marks)

Describe how/when Envy should recognize revenue and provide a rational (explanation) for your answer.

3.3 Situation 3:Kiku Ltd. was contracted to build a new high school for $12,000,000. Construction began in 2019 and is expected to be completed in 2021. Data for 2019 and 2020 are:20192020Costs incurred for the year ........................................................................$3,080,000 $6,208,000Cost incurred to date ....................................................................................3,080,000 9,288,000Estimated costs to complete .....................................................................6,920,000 1,512,000Estimated total costs to complete.........................................................10,000,000 10,800,000

Instructions Using the percentage-of-completion method and the cost-to-cost basis, a) How much revenue and gross profit should be reported for 2019? Show your calculation. b) How much revenue and gross profit should be reported for 2020? Show your calculation. c) Indicate/describe what method should be used to record the project if Kiku cannot properly estimate progress towards completion and the costs to complete the project each year. d) describe what is a "Contract Asset/Liability" and give an example of both a contract asset and a contract liability.