Reference no: EM133002505

La Mancha Machines Ltd (LMM Ltd), a GST registered Singapore company, is a retailer of standard electronic measuring machines (machines). LMM Ltd has a financial year end of 31 December. The company sells a single model with or without a one-year calibration contract under the following price schemes. All prices exclude GST of 7%.

Scheme 1

Undiscounted list price of $100 per machine.

Scheme 2

If a customer purchases 100 machines in a single order, a price of $95 per machine.

Scheme 3

If the customer purchases a machine plus a one-year calibration contract for that machine, $140 per machine with calibration contract.

Scheme 4

If a customer purchases 100 machines and 100 one-year calibration contracts, a price of $130 per machine with calibration contract.

Scheme 5

A stand-alone undiscounted one-year calibration contract, $50 per calibration contract. If a customer purchases 100 calibration contracts in a single order, a price of $50 per calibration contract remains.

• Machines sold under scheme 1 and scheme 3 have a 45-day cash back return policy if the customer is dissatisfied with the product and any unused portion of the calibration contract is refunded to the customer. Machines sold under scheme 2 and scheme 4 have a no cash back return policy, however, customers can instead
• like-for-like replacement if a machine is found to be defective within 45 days of sale. LMM Ltd expects 5 percent (5%) of the machines sold under each scheme to be returned or exchanged within the 45-day period.
• On 3 December 2020, LMM Ltd sold and delivered the following under schemes 3 and 4 on cash terms.

Contract A under Scheme 3        4,500 machines
Contract B under Scheme 4.       2,900 machines (29 orders of 100 machines & 100 one-year calibration contracts).

• All contracts for sale and calibration of the machines by LMM Ltd are within the scope of SFRS (I) 15 Revenue from Contracts with Customers. In particular, SFRS (I) 15 para B26 states that "Exchanges by customers of one product for another of the same type, quality, condition and price (for example, one colour or size for another) are not considered returns for the purposes of applying this Standard".
• LMM Ltd adopts a perpetual inventory system and the cost of each machine is $60. Upon making a sale, LMM Ltd immediately accounts for potential sales returns.

Required
(Round all final figures to the nearest dollar where applicable.)

Problem (a) Identify, with explanations, the performance obligation(s) for contract A and contract B separately.

Problem (b) Determine and allocate the transaction price to the performance obligation(s) for contract A and contract B separately.

Problem (c) Prepare journal entries, without dates and narration, to record the sale of the machines for contract A and contract B separately on 3 December 2020.

Problem (d) The balance of the refund liability account and recoverable asset account was $20,440 and the $13,140 respectively on 1 December 2020. Machines, making up 90% of the balances of these accounts, have exceeded the 45-day return period and can be presumed to be accepted by the customer on 31 December 2020.

(i) Prepare journal entries, without dates and narration, to record the recognition of revenue and cost of goods sold for the machines that are presumed to be accepted.

(ii) Determine the closing balance of the refund liability account and the recoverable asset account on 31 December 2020.