Question 4

Jelly Specialties sells premium hard ice-cream from a portable trailer located in a busy public park. To promote sales, the business has created a loyalty program. If a customer buys nine containers of ice-cream, the tenth will be free. Each container of ice-cream sells for $8.40. In 2020, they sold 36,000 containers of ice-cream and redeemed 1,000 free containers. The $8.40 sales price would thus include both the sales price realized at sale as well as the expected future loyalty revenue that is unearned. The business expects that all free containers will be redeemed in the future. They also expect that no free containers will be forfeited as the loyalty card expires one year after the first purchase.

Jelly uses IFRS-15 to account for various identifiable components making up the sales revenue.

Required:

1. Prepare the journal entries for the current year with respect to the sales and loyalty program.
2. Compute the amount of liability to be reported at the end of the current year with respect to the loyalty program.