Reference no: EM131731609

Question 1 -

Part (a) Criscoes Homeware Limited operates throughout New Zealand and provides a customer loyalty programme in which customers are granted loyalty points when they spend a specified amount on home utensils. These points can then be redeemed to purchase further goods from the company's departmental stores.

During the reporting period ended 31^st December 2014 the company awarded 500,000 points to its customers. The fair value of each loyalty point is estimated to be $1. When the awards scheme was set up, the management of the company expected 85% of these points to be redeemed. By the 31^st December 2014, customers have redeemed 255,000 points in exchange for goods. The cost of the goods exchanged during the year ended 31^st December 2014 was $180,000.

During the reporting period ending 31^st December 2015, the company revised its expectations and expected 90 per cent of the points to be redeemed. For the reporting period ending 31^st December 2015, another 190,000 of the points were redeemed. The cost of the goods exchanged during the year ended 31^st December 2015 was $120,000. During the reporting period ending 31^st December 2016, a further 25,000 points were redeemed. The company does not expect any more points to be redeemed after the reporting period ending 31^st December 2016. The cost of the goods exchanged during the year ended 31^st December 2016 was $7,000.

Required:

i. Prepare the journal entries to account for the loyalty points for the year ended 31^st December 2014.

ii. Prepare journal entries (without narrations) to account for the redemption of the loyalty points and the cost of good exchanged for the years ended 31 December 2014, 31^st December 2015 and 31 December 2016.

Part (b) On 1 October 2013, Hamilton Motors Limited sold a motor vehicle for $24,018. The terms of the sale requires the purchaser to make three yearly payments of $10,000, the first one to be made on 30 September 2014. Hamilton Motors charges interest at the rate of 12% per annum on any outstanding balances of the sales price.

Required:

i. NZIAS 18 provides the criteria for recognition of revenue in relation to the sale of goods. State the conditions that must be satisfied before revenue from sale of goods can be recognized.

ii. Prepare an amortization schedule to show the annual payments, interest revenue and principal amounts received by Hamilton Motors limited.

iii. Prepare general journal entries for Hamilton Motors for the years ended 30 September 2014, 30 September 2015 and 30 September 2016 using the net-interest method.

Question 2 - For the year ended 31^st December 2016, Garage Stores made cash sales of electrical appliance for a value of $2,380,000. The cost of inventory sold was $1,785,000 (23,800 x $75). The sales were subject to a right of return clause by which customers are entitled to a full refund of the sales price if defective items purchased are returned to Garage Stores within 3 months of purchase. The sales are also subject to a warranty clause by which Garage Stores undertakes to repair any defective items if returned within a period of 6 months from date of sale. During the year ended 31^st December 2016, Garage Stores made refunds of $45,000 and paid for repair costs of $22,000 for defective electrical appliances. As at 31^st December 2016, the right of return privilege for sales amounting to $1,950,000 had expired. The right of return privilege for the balance of sales made during the year ended 31^st December 2016 is expected to expire in the following financial year.

Required: Prepare journal entries in general journal form (with narrations) for the above transactions to account for sales, right of return, refunds and repair expenses and state how balances in allowance for right of return and right to recover accounts should be shown in the balance sheet. Assume sales are only recorded after all right of return privileges have expired.

Question 3 - Huntly Development Limited commenced construction of a 3-Storey Shopping Mall in Hamilton on 1^st November 2013. It signed a fixed contract for $25 million and the project is to be completed by 31^st March 2017.The expected cost of construction was $20 million. The percentage of completion, costs and revenue can be reliably estimated. Financial details of the project for each of the years ending 31^st March are as follows:

$ Million	2014	2015	2016	2017
Costs incurred for the year	5	7.5	6	8
Estimated costs to complete	15	8	8	-
Progress billings for the year	6	7.5	6.5	5
Cash collected during the year	4.5	8	5	3.5

Required;

(a) Prepare a schedule to show the percentage of completion, revenue, expenses and gross profit for each of the years ending 31^st March 2014, 31^st March 2015, 31^st March 2016 and 31^st March 2017.

(b) Prepare general journal entries to record all transactions related to the construction contracts for each of the years ending 31^st March 2014, 31^st March 2015, 31^st March 2016 and 31^st March 2017.

(c) Prepare an extract of the Income Statement for the years ending (to show revenue and expenses related to the construction contract) and Balance Sheet as at (to show accounts receivable and contract asset/ contract liability) 31^st March 2014, 31^st March 2015, 31^st March 2016 and 31^st March 2017.

Question 4 - With reference to the relevant New Zealand Equivalent to International Accounting Standards (NZIAS), briefly describe the conditions that must be fulfilled before revenue from sale of goods can be recognised.