Reference no: EM132867979

Question - Company A has a purchase contract for XYZ products with Vendor B. This product will be resold to other customers by Company A. In the purchase contract, there are take or pay terms where if Company A or Vendor B cannot buy or deliver the product according to the agreed commitment, each party will be subject to a fine.

In the current pandemic situation, Company A cannot find customers who can buy back XYZ products. To avoid a fine if the XYZ product cannot be purchased by Company A, Company A conducts a sales auction. It is known that the auction winner is Vendor B and the agreed price is the price according to the selling price of vendor B to Company A (no margin will be taken by Company A). The advantage obtained by Company A in this sales contract is that Company A is not subject to a take or pay fine if it cannot buy (take) XYZ products from Vendor B according to the agreed commitment.

Required -

Please explain, can Company A recognize the sales contract to vendor B as revenue in accordance with IFRS 15 - Revenue from Contracts with Customers? In this case, there is no transfer of goods to the customer because the product is already in the customer's warehouse (Vendor B).

Please explain the correct accounting treatment for sales transactions of goods from company A to customer (Vendor B) and set out the journal entries required to reflect your recommended accounting treatment.

If a separate agreement is made where it is agreed that neither Company A nor vendor B will send invoices to their respective customers (eliminating the obligation of Vendor B to submit products to Company A and vice versa), can it be concluded that there is no contractual agreement in the sale and purchase agreement for this product. Provide relevant journal entries.