Question 2 (30 marks)

DigiSmart Consolidated has three operating divisions: Hasher Smart Office, Alvaone Smart Home and Cabella Kids. Each division maintains its own accounting system.

Hasher Smart Office Division (Hasher)

Hasher sells a range of high-tech furniture for office, that can only be operated via a special application (app) that is sold and developed by Hasher. On 1 January 2019, Hasher sells a smart conference table to Fuller Company (Fuller) for $120,000. Hasher agrees to repurchase the smart conference table, which is an unconditional obligation, on 31 December 2019, for a price of $145,200.

Alvaone Smart Home Division (Alvaone)

Alvaone provides packages of smart home solution to domestic customers. On 1 February 2019, Alvaone signed a contract with Mrs.Wong to sell a set of smart curtains, with a customized operation app, one wall panel, plus installation for $8,800. On a standalone basis, one set of smart curtains with the operation app sells for $7,500, one wall panel sells for $2,000. The fair value of the installation service for the smart curtains and wall panel is estimated to be $500. The smart curtains and operation app cannot be purchased separately. The smart curtains cannot be operated without this customized app. The wall panel can be purchased separately. Other vendors can provide the installation service. The contract specifies that the full payment of $8,800 shall be made only upon the delivery and installation of the smart curtains with app and the wall panel. The smart curtain was delivered on 16 February 2019, and the wall panel was delivered on 20 February 2019. Installation of the smart curtain and wall panel was completed on 20 February 2019. Alvaone received cash payment from the customer on 1 March 2019.

Cabella Kids Division (Cabella)

On 1 May 2019, Cabella entered into a contract to deliver 1,000 story-pad to Jones Inc. (Jones) on 31 July 2019. It was a non-cancellable contract and the payment term specified that Jones would pay the full price of $125,000 in advance on 1 June 2019. Jones did not pay until 15 June 2019, and Cabella delivered the 1000 story-pad on 31 July 2019. The cost of the 1000 story-pad was $85,000.

Required:

(a) For Hasher, advise whether the contract with Fuller is a sales transaction. Explain how the transaction should be recorded on 1 January 2019. Your answer should not include any journal entry. (8 marks)

(b) Discuss the separate performance obligations for Alvaones sale of smart curtains. Prepare the journal entries for Alvaone in regard to this contract in 2019. Use separate accounts for sales revenue and service revenue. (14 marks)

(c) Advise when and what kind of contract asset and (/or) a contract liability should be recognized by Cabella, if any, for the transaction with Jones. Discuss when Cabella should recognize the sales revenue for the 1,000 story-pad. Your answer should not include any journal entry. (8 marks)

[Total for Question 2: 30 marks]