Question
i). The new revenue accounting standard IFRS 15 outlines a five-step process for revenue recognition, the third step is to determine the transaction price. Required
i). The new revenue accounting standard IFRS 15 outlines a five-step process for revenue recognition, the third step is to determine the transaction price.
Required On what basis should the transaction price be allocated to various performance obligations? Identify the approaches for allocating the transaction price
ii) Sunshare Zambia manufactures and sells window frames and roofing sheets. Sunshare also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Sunshare entered into the following contract on July 1, 2019, with a local homeowner. The customer purchases windows for a price of K19,200 and chooses Sunshare to do the installation. Sunshare charges the same price for the windows irrespective of whether it does the installation or not. The installation service is estimated to have a standalone selling price of K4,800. The customer pays Sunshare K16, 000 (which equals the standalone selling price of the windows, which have a cost of K8, 800) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2019, Sunshare completes installation on January 15, 2020, and the customer pays the balance due. Sunshares year end is December 31.
Required
a) Using guideline from IFRS 15 explain how the above transaction will be treated
b) Prepare the journal entries for Sunshare for the above transaction
c)Repeat the requirements in (b), assuming Sunshare estimates the standalone selling price of the installation based on an estimated cost of K3,200 plus a margin of 20% on cost, and given uncertainty of finding skilled labor, Sunshare is unable to develop a reliable estimate for the standalone selling price of the installation.
Step by Step Solution
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Step: 1
aOn the basis of the information provided Sunshare should allocate the transaction price to the wind...Get Instant Access to Expert-Tailored Solutions
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