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In: Accounting

Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths also provides installation service...

Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Geraths enters into the following contract on July 1, 2020, with a local homeowner. The customer purchases windows for a price of $2,400 and chooses Geraths to do the installation. Geraths charges the same price for the windows irrespective of whether it does the installation or not. Geraths estimates the standalone selling price of the installation based on an estimated cost of $400 plus a margin of 20% on cost The customer pays Geraths the full amount upon delivery. The windows are delivered on September 1, 2020, Geraths completes installation on October 15, 2020. Prepare the journal entries for Geraths in 2020.

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Expert Solution

Geraths Windows:
Sr.No. Particulars
1) Note: as per IFRS-15, revenues shall be recognised by performance obligations. Once each performance obligation is complete, revenue for that obligation shall be accouted for.
2) In this situation two performance obligations are there:
a. Selling of windows,
b. Installation of windows.
Recognition of these two obligations will be unchaged irrespective of whether Geraths changes the price with or without installation.
3) Total price charged: $ 2400
a. Price of standalone Installation: $ 400 + 20% = $ 480
b. Standalone price of sell of windows: $ 1920
Journal Entries:
Date Particulars Debit Credit
01.09.2020 Trade Receivables    1,920.00
Sales Revenue    1,920.00
To record sale of windows.
01.09.2020 Bank A/c    2,400.00
Trade Receivables    2,400.00
To record receipt of full amount from trade receivables.
15.10.2020 Trade Receivables        480.00
Service Revenue        480.00
To record service revenue upon installation of windows.

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