Question

In: Accounting

Use the information here for answering questions 1 to 2 on this page. On 30 September...

Use the information here for answering questions 1 to 2 on this page. On 30 September 2019, Lilah Ltd provided a personal coaching service package to Customer Z, consisting of an initial in-person consultation and follow up telephone support (up to 6 hours per month) for a two-year period. Customer Z paid $2,000 upfront for this package on 30 Sept 19 when they had their initial consultation. Lilah Ltd charges $600 for an initial in-person consultation and $100 per month for telephone support (up to 6 hours per month) when these services are sold separately

Q1: Determine how much of the transaction price should be allocated to each of the performance obligations. Type your final answers here in numerals only, rounded to the nearest whole dollar. You must show workings/calculations for Q1 in the textbox following this question.

Initial in-person consultation $

Ongoing telephone support $

You must show your workings/calculations for Q1 in this textbox to support your answers.

Q2: Provide the accounting journal entries to record this transaction in accordance with AASB 15 for the year ended 30 June 2020.

Solutions

Expert Solution

All amounts are in $

In the given case, Lilah Ltd accepted from its customer 2,000 upfront for the package of initial consultation and telephonic support upto 6 hours per month for 2 years.

In general, it charges $600 for initial consultation and $100 for 6 hours of telephonic support per month.

We have to split the 2,000 amount between two performance obligations. For knowing the consideration for two performance obligation we were given the normal rates charges.

So consideration for initial consultation = $600

Consideration for telephonic support = $2,000 - $600 = $1,400

So consideration per month to be recognised = $1,400/24= $58.33

(In general, we have to discount the cashflow of $100 per month using the effective rate of interest and decide on the present value of such Cashflows and take it as consideration for performance obligation)

Initial in person consultatio = $600

Ongoing telephonic support = $1,400

Monthly telephonic support income to recognise = $58.33

Accounting journal entry

On 30th September

Cash a/c $2,000

To Revenue a/c $600

To Deferred revenue a/c $1400

(The revenue received is recognised as sales belonging to upfront consultation and the remaining revenue is deferred)

Monthly revenue recognition

Deferred revenue a/c $1,400

To Service revenue a/c $58.33

(Telephone support service for the month recognised)

So for the year ending 30th June the total revenue to be recognised for the year is $525 (58.33 x 9 months)

Deferred revenue a/c $525

To Service revenue a/c $525

(Telephone revenue recognition for the year end 30th June is done)


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