Reference no: EM132906452

WTI grew from a single-store operation, selling high-quality postcards and stationary (such as agendas, calendars, etc.) into a chain retailer. Currently, WTI has six corporate-owned stores in Ontario. Products are ordered on a custom basis and purchased from the finest manufacturers. That is, WTI sources inventory from manufacturers in Europe and brings it to Canada for resale. However, WTI also has a small manufacturing facility producing high-end pens and customizing stationary. WTI's founder, Amanda Soto, is set to retire from running the day-to-day business. Luckily, she recently received an offer from a young entrepreneur, Rowena Water. Sale of the company to Rowena will depend on the net income reaching a desirable level in 2021. WTI follows IFRS. Amanda has asked for your help in recording the following transactions that occurred during the 2021 fiscal year which ends on October 31.

• At the retail stores, customers can buy gift cards with no expiry date. On average 75% of the gift cards sold will be redeemed within one year, 90% of the gift cards sold will be redeemed within two years, and the remaining may never be redeemed. In 2021, $120,000 worth of gift cards have been sold and $90,000 of those have been redeemed by September.

• In 2020 fiscal year, WTI ordered 10,000 leather-bound, high-end desktop agendas that cover for the 15-month from January 2021 to March 2022 from one of its suppliers. The cost of each agenda was $10. WTI started selling the agendas for $30 each in December 2020. After the holiday sales, WTI still had 4,000 of agendas left in February 2021 and WTI discounted the agendas by 80%. Amanda decided that further reduction in price would not be appropriate as it would be 'embarrassing' in front of customers. Since February until May, another 500 units were sold. The remaining are still available for sale but Amanda admits sales have been 'few and far between'. In September 2021, WTI decides to sell the 2022 calendars together with these older agendas as a bundle for a total price of $22. WTI normally sells the calendars for $22 each. WTI believes that this strategy is better than offering discounts on the new calendars which the company sometimes does ahead of the holiday season.

• In 2021, WTI signed a contract with Hero Inc to produce 1000 units of high-end pens. WTI will produce the pens over a period of 2 months (from October 1 to November 30, 2021). Based on the customer's request, WTI will engrave Hero's logo on all pens. Once the engraving is done, Hero can request delivery of any units anytime, regardless of whether the rest of the order is finished or not. WTI estimated that 500 pens will be finished by October 31. Hero paid an upfront deposit of $12,000 which is 75% of the total sales price for the order. WTI offers 5% volume discounts on order over $20,000 and encourage Hero to order more before December 31, 2021. Hero is a newer customer who have never ordered from WTI before.

• WTI also has a long-time customer Eastern Bank. Since 2010, Eastern has signed annual contract with WTI in which WTI will supply all its stationary with the bank's logo. WTI purchases in bulk stationary such as notebooks, letters, envelopes, calendars, and pens, then makes customization for the bank. Eastern Bank guarantees a minimum purchase of $80,000 each year and in return WTI gives a 10% discount on all purchases if total purchase in the year exceeds $80,000. In eight of the past ten years, Eastern Bank has made purchases over $100,000 per annum. So far, Eastern has ordered $65,000 worth of merchandised.

• Today is September 30, 2021. You are the new accountant at WTI and Amanda wants to you tell her what accounting issues she needs to be aware of in 2021.

Required:

Problem a. Who is (are) the major user(s) of the financial statements and what type of decisions do they have to make based on the financial statements?

Problem b. What are the potential reporting biases that Amanda may have in preparing the 2021 financial statements?

Problem c. For each of the following transactions, please discuss the revenue recognition alternatives and make recommendations based on case facts and the appropriate IFRS 15 criteria and provide calculations when applicable:

i) Gift cards sold in 2021
ii) Bundled sale of 15-month 2021-2022 agendas and 2022 calendars
iii) Sale of customized pens to Hero Inc.
iv) Sale of customized stationary to Eastern Bank.