Reference no: EM132726918
Question - Electronics Inc. buys and sells photocopy equipment that are used in businesses across Ontario. The company follow IFRS. Unit selling prices range from $10,000 to $100,000.
Electronic Inc. sells a photocopy system to Manor College on September 10th, 2020. The selling price for the photocopy equipment is usually $85,500.
Electronic Inc. will also install the photocopy system. The estimated fair value of installing the photocopy system is $2,700.
Electronic Inc. will also provide one year of maintenance service for the photocopy system. The fair value for the maintenance for the year is $1,800.
Electronic Inc. sold the photocopy system with installation and maintenance to Manor College for $85,000. The photocopy system cost Electronic Inc. $45,000.
Manor Inc. is obligated to pay Electronic Inc. $20,000 upon delivery of the photocopy system and the balance on November 15th.
Electronic Inc. delivers the photocopy equipment on October 15th, 2020, and completes the installation of the photocopy equipment on November 1st, 2020.
On December 31st Manor College pays for 2 months of maintenance services. The following December 31st Manor College pays for 10 months of maintenance services.
On November 15th Manor College informs Electronic Inc. that they will be not be able to pay their account that is due. The two parties enter into an agreement that the account will be converted into a non-interest bearing promissory note to be repaid in one year from now. The maturity value of the note is $67,098. Manor College borrows fund at a rate of 6%. Electronic Inc. has various loans at 5% interest. The company's year-end is December 31st.
Required -
i. List the performance obligations?
ii. Explain when the revenue should be recognized for each performance obligation under IFRS. Support your answer by explaining why it should be recognized at the time you selected.
iii. Prepare the journal entries for 2020 and 2021. If there is no entry be sure to state no entry. Hint remember to allocate the revenue among the different performance obligations and then use this information when you prepare the journal entries.
iv. If the company followed ASPE when should the revenue be recognized for the sale of the photocopy system and why? Be sure to list the criteria and apply it to the question. Hint use RCMP for criteria.
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