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Hi, there is a question I need to make sure the correct answer with simple explanation please
On 31 Dec 2014, Merigo Co. sold goods to a customer for $10 million. In order to encourage sales, Merigo has given the customer interest free credit with the total amount becoming payable in three years time. Interest rates are currently are currently 4% per annum.
What should Merigo record as revenue in the statement of profit or loss for the year ended 31 Dec 2014? & what the standard number you followed ?
A. $10 million
B. $8 million
C. $8.89 million
D. $3.33 millionThanks to all
My Answer is A. $ 10 million , because of the interest free
You need to discount that $10,000,000 to its present (today) value
This you do by multiplying the $10,000,000 by the discount factor for 4% for 3 years
The discount factor of 4% is 1/1.04 and if you multiply $10,000,000 by that discount factor 3 times (once for each of 3 years) you should arrive at the correct answer
OK?
Ok, Thanks so much
Could you please refer me some text to read more about that?
Thanks
Better than a text – watch John Moffat’s F2 (F3?) video lectures on this site. I believe that they will be clearer for you than any text
I will too watch John Moffats F2/F3 lectures. But Mike.. why must you discount to present value? Goods were sold in 2014… and the question wants figures for 2014.. so why must we bring the figure to its present value? the figures 10 mill is relation to the period 2014?
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