Question
In: Accounting
Dragon’s Fire Pty Ltd enters into three contracts in the same week with Red Hot Equipment...
Dragon’s Fire Pty Ltd enters into three contracts in the same week with Red Hot Equipment Pty Ltd who have agreed to pay the total of $726 000 (GST inclusive). Red Hot Equipment Pty Ltd pay the total in full on 7 August 2021. The details for the three contracts are as follows:
| Date of Contract | Description | Contract Price (GST Exc) | Stand Alone Selling Price (GST Exc) |
| 1/1/2021 | Construction of Outdoor wood heaters | $600,000 | $320,000 |
| 3/1/2021 | Renovation of existing wood heaters owned by the client | $40,000 | $140,000 |
| 5/1/2021 | Construction of new model of wood heater to be used inside | $40,000 | $200,000 |
Required:
Apply the five-step process for revenue recognition in regards to the contract with Red Hot Equipment Pty Ltd. Discuss how Dragon’s Fire shall recognise the revenue from the contract. Please list each of the five steps and show any calculations.
Solutions
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Personal Protective Equipment. At the Beginning of the year 2020,
H&S expanded its retail business by adding over 50 shops in
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HEALTH and SAFETY (PTY) LTD (H&S) is a wholesaler of
Personal Protective Equipment. At the Beginning of the year 2020,
H&S expanded its retail business by adding over 50 shops in
order to meet the demand for protective gear. The following
information has been extracted from the comparative financial
statements included in the company's 2019 annual report (all
amounts are in thousands of Rands):
Dec. 31, 2019
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Total liabilities
R26 000
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Total shareholders' equity
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HEALTH and SAFETY (PTY) LTD (H&S) is a wholesaler of Personal Protective Equipment. At the Beginning...
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of Personal Protective Equipment. At the Beginning of the year
2020, H&S expanded its retail business by adding over 50 shops
in order to meet the demand for protective gear. The following
information has been extracted from the comparative financial
statements included in the company's 2019 annual report (all
amounts are in thousands of Rands):
Dec. 31, 2019
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R26 000
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of Personal Protective Equipment. At the Beginning of the year
2020, H&S expanded its retail business by adding over 50 shops
in order to meet the demand for protective gear. The following
information has been extracted from the comparative financial
statements included in the company's 2019 annual report (all
amounts are in thousands of Rands):
Dec. 31, 2019
Dec. 31, 2018
Total liabilities
R26 000
R18 000
Total shareholders' equity
34...
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