Question

Electronics Inc. buys and sells photocopy equipment that are used in businesses across Ontario. The company follow IFRS. Unit selling prices range from $10,000 to $100,000.

		Electronic Inc. sells a photocopy system to Centennial College on September 10th, 2020. The selling price for the photocopy equipment is usually $85,500.
-		Electronic Inc. will also install the photocopy system. The estimated fair value of installing the photocopy system is $2,700. Electronic Inc. will also provide one year of maintenance service for the photocopy system. The fair value for the maintenance for the year is $1,800. Electronic Inc. sold the photocopy system with installation and maintenance to Centennial College for $85,000. The photocopy system cost Electronic Inc. $45,000. Centennial Inc. is obligated to pay Electronic Inc. $20,000 upon delivery of the photocopy system and the balance on November 15th.

• Electronic Inc. delivers the photocopy equipment on October 15th, 2020, and completes the installation of the photocopy equipment on November 1^st, 2020.
• On December 31^st Centennial College pays for 2 months of maintenance services. The following December 31^st Centennial College pays for 10 months of maintenance services.

On November 15^th Centennial College informs Electronic Inc. that they will be not be able to pay their account that is due. The two parties enter into an agreement that the account will be converted into a non-interest bearing promissory note to be repaid in one year from now. The maturity value of the note is $67,098. Centennial College borrows fund at a rate of 6%. Electronic Inc. has various loans at 5% interest. The company’s year end is December 31^st.

1. List the performance obligations?
2. Explain when the revenue should be recognized for each performance obligation under IFRS. Support your answer by explaining why it should be recognized at the time you selected.
3. Prepare the journal entries for 2020 and 2021. If there is no entry be sure to state no entry. Hint remember to allocate the revenue among the different performance obligations and then use this information when you prepare the journal entries.
4. If the company followed ASPE when should the revenue be recognized for the sale of the photocopy system and why? Be sure to list the criteria and apply it to the question. Hint use RCMP for criteria.
5. Peer evaluation

Answer 1

Answer :

1.Electronic Inc has three (3) performance obligations, to wit:

• to deliver the photocopy system
• to install the photocopy system
• to provide maintenance service of the photocopy system

2.Revenue should be recognized as follows:

• For the delivery of the photocopy system, revenue should be recognized at a point IN time, which is, when the equipment is delivered and the customer receives the goods. By this time, the entity has transferred the physical possession of the asset, the customer has a legal title to the asset and has accepted the asset. Thus, the risks and rewards of ownership has been transferred and transfer of control has taken place.
• For the installation services, revenue should be recognized at a point OVER time. Under IFRS 15, revenue should be recognized over time if the performance creates or enhances an asset that the customer controls as the asset is created or enhanced.
• For the maintenance services, revenue should be recognized at a point OVER time also. Under IFRS 15, revenue is recognized over time if the customer simultaneously receives and consumes the benefits provided by the entity's **********************************************************
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