Part I

MusicTrain Pty Ltd sells guitar and music lessons. On 1^st June 2021, MusicTrain signed a contract with Rudolf Music Club to provide 50 guitars and 2 music lessons each week for 10 weeks. The contract is worth $46,200 (GST inclusive) and on credit terms n/30 for the guitars and music lessons. This amount also includes one free service for the guitars, which will be performed 12 months after the delivery of the guitars.

The stand-alone price for the 20 music lessons is $2,420 (GST inclusive). The lessons will start on 5^th June 2021.

The stand-alone price of the guitars is $48,400 (GST inclusive). The 12-month service fee for the guitars is usually $891 (GST inclusive).

Rudolf Music Club paid the full amount on 20^th June 2021 for the guitars and lessons.

The guitars were delivered on 28^th June 2021.

By 30^th June 2021, 8 music lessons had been held.

Required:

a) How should MusicTrain Pty Ltd allocate the transaction price to the distinct performance obligations in this contract based on IFRS 15 / AASB 15 Revenue with Contracts from Customers?

b) MusicTrain’s accountants would like to record the revenue from the contract at a point in time rather than over time. With reference to IFRS 15 / AASB 15 Revenue from Contracts with Customers, discuss whether this treatment is correct and calculate how much revenue should be recorded in the Statement of Financial Performance for June 2021.

Question 2, Part II

On 1^st July 2021, NetCafe Pty Ltd had a debit balance $78,200 in accounts receivable and a credit balance $16,800 in the allowance for doubtful debts.

On 3^rd July, NetCafe was notified by Fantastic Holiday Pty Ltd that the business had been declared bankrupt and thus, they will not be able to pay back $5,060 owed to NetCafe from a credit sale in June 2021.

On 25^th July 2021, NetCafe was notified by FirstLeisure Pty Ltd that $1,540 (GST Inclusive) that had been written off as uncollectible in May 2021 would be paid in full in August 2021.

At the end of year on 31^st July 2021, the managers reassessed the allowance for doubtful debts and decided on a closing balance of $16,320 (GST Exclusive) under the ageing of receivables approach.

Required:

1. Prepare journal entries for each of the above events. Narrations are not required.