Reference no: EM132497296

Point 1. Revenue is recognised based on a five step process that is applied to a company's revenue arrangement.

Question (a) Describe the five-step process in revenue recognition. Give example.

Question (b) Revenue may also be recognised over time.

Give one example of business activities in which revenue is recognised over time. Explain the rationale in recognising revenue over time instead of the point of sale basis.

Point 2. Su Oven Ent is an oven dealer. Other than selling ovens, the company also offers additional services such as installation services and maintenance services together with the ovens that it sells. Following are two major events that occurred during the year 2016.

(i) On 10 April, Su Oven signed a contract which is comprised of a free standing oven plus installation to a customer for a total price of RM8,000. On a standalone basis, the oven sells for RM7,000 while the installation would cost RM1,500. The customer paid the contract in cash and the oven were delivered and installed on 15 May.

(ii) On 11 April, Su oven enters into a contract with a well-known national chain hotel to deliver 400 ovens during 2016. The ovens are priced at RM200 each and Su Oven provides a 6% volume discount if the hotel purchases at least 300 ovens during 2016. On 24 April, the company delivered and received payment for 280 ovens. Based on prior experience with this hotel, the delivery of this many ovens makes it certain that the hotel will meet the discount threshold. Required: Prepare the journal entries to record all transactions occurred in year 2016. Show all your workings.