Question

Q3:( 5marks)

Iowa Development (ID) made the following land sales and had the following cash collections:

2012: Sold Altoona land for $2,000,000 that cost ID $1,200,000. The land agreement required payments of $1,000,000 within one week of occupancy of the land, and the other $1,000,000 in 2013.

Required:

a- Prepare journal entries to record the sale, cash collections, and recognition of gross

profit in 2012 and 2013 using the installment sales method under U.S

GAAP (Deferred gross profit method).

b- Repeat the requirement 1 applying the IFRS method for significant uncertainty in collectability.

Answer 1

	Journal Entries
	Sale
2012
1	Buyer A/c/Purchaser	2000000
	To Land		1200000
	To Gross Profit		400000
	To Deferred Gross Profit		400000
	(Being Profit Recognised in Proportion to Colletions)
2	Cash A/c	1000000
	To Buyer/Purchaser		1000000
	(Collection from Customers)
2013
1	Cash A/c	1000000
	To Buyer/Purchaser		1000000
	(Collection from Customers)
2	Deferred Gross Profit	400000
	To Gross Profit		400000
	(Being Deferred Gross Profit was Recognised)
Theory Source - Google
<div "="">Sales Under the Installment Method
Under the installment method, both revenue and the associated cost of goods sold are recognized at the time of the initial sale, but gross profit recognition is deferred until cash payments are received. This method requires the accountant to track the gross margin percentage for each reporting period, so the correct percentage can be recognized when the associated cash receipts arrive at a later date.
When there is Significant Uncertainity under IFRS Sale 2012 1 Buyer A/c/Purchaser 2000000 To Land 1200000 To Deferred Gross Profit 800000 (Being Profit Recognised in Proportion to Colletions) 2 Cash A/c 1000000 To Buyer/Purchaser 1000000 (Collection from Customers) 2013 1 Cash A/c 1000000 To Buyer/Purchaser 1000000 (Collection from Customers) 2 Deferred Gross Profit 800000 To Gross Profit 800000 (Being Deferred Gross Profit was Recognised)