Provide the journal entries to recognise the transaction

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Question - Pirates (Pty) Ltd is a manufacturing company located in Orlando, Soweto (Gauteng province). Pirate (Pty) Ltd. The company is registered as a manufacturer and supplier of custom-made Orlando Pirate sneakers and operates in the manufacturing sector. The company sells the sneakers through their outlets located in various malls around the country. The company has a reporting ending 31 March, and currently you are busy preparing for the financial year end of 31 March 2021. The company is registered for VAT as well as other companies it trades with. The VAT is currently at 15%.

During the current reporting period, Pirates (Pty) Ltd entered into 1 000 contracts with customers. Each contract includes the sale of one type of an Orlando Pirates Branded sneaker for R1 400 each (1 000 total products × R1 400 = R1 400,000 total consideration). Cash is received when control of a sneakers transfers to the customers. Pirates (Pty) Ltd.'s customary business practice is to allow a customer to return any unused products within 60 days and receive a full refund. Using the expected value method, the entity estimates that 97% of the sneakers sold will not be returned. Pirates (Pty) Ltd.'s manufacturing cost of each sneaker is R600.

Required -

1. Briefly outline the process involved in the recognition and measurement of revenue?

2. Describe the criteria that must be met when identifying a contract that would fall within the scope of IFRS 15.

3. Provide the journal entries to recognise the above transaction in the records of Pirate (Pty) Ltd for the year ended 31 December 2020.

Reference no: EM133008984

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