Question

On April 1, 2016, Marcus Corporation sells a computer to a customer and agrees to provide technical support for the next six months. The customer pays Marcus Corporation $400 up front on April 1, 2016 and $30 per month for the next six months, with amounts billable and paid on the last day of the month (starting on April 30, 2016). Marcus Corporation sells the computer without the technical support for $500. Marcus also provides technical support services to customers on a stand-alone basis for $20 per month.

What journal entry should Marcus Corporation make on April 1, 2016? What journal entry should Marcus Corporation make on April 30, 2016?

Answer 1

As per IFRS 15 , Revenue from Contract with Cusmers , the timing of revenue recognition depends on the timing of fulfilment of promises by the entity. In the given case,, there are two promises that the entity is fulfilling abide by in the contract of loyalty card.
Promise no.1: The transfer of goods the cusmer
Promise no.2: The transfer of maintenance services to the cusmer
The entity regularly sells the product on a stand-alone basis, which indicates that the customer can benefit from the product on its own. The customer can benefit from the maintenance services together with a resource the customer already has obtained from the entity (ie the product).
Accordingly the entity is required allocate the transaction price the promises. In orderv do this, the entity shall determine the stand-alone selling price of each promise in isolation, and recognise revenue accordingly.
Calculation of stand-alone selling prices
Computer sold	a		$          400.00
Stand alone selling price for Maintenance	b		$            30.00
Total Stand alone selling price	$          430.00
1) Journal entry for 1st april
	Dr.	Cr.
Cash	$               400.00
Revenue		$      400.00
(To record revenue recognised for sale of goods)
2) Journal entry for 30th April
	Dr.	Cr.
Cash	$                  30.00
Revenue		$        30.00
(To record revenue recognised for maintenance services