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Caravans Deluxe is a retailer of caravans, dormer vans and mobile homes, with a year for 20X8. It is having trouble so is offering incentives selling one model the $30 customers who buy this model before 31 May 20X7:
(a) customers buying this model before 31 May 20×7 will receive a period of interest free credit, 20×7 provided deposit of $3.000, an of $15,000 on 1 August they pay a non-refundable and the balance of $12,000 on 1 August 20X9.
(b) A three-year service plan, normally worth $1,500, is included free in the price of the caravan. On 1 May 20X7, a customer agrees to buy a Mini-Lux caravan, paying the deposit of $3,000. Delivery is arranged for 1 August 20X7. As the sale has now been made, the director of Caravans Deluxe wishes to recognise the full sale price of the caravan, $30,000, in the accounts for the year ended 30 June 20×7
Required Advise the director of the correct accounting treatment for this transaction. Assume a 10% discount rate Show the journal entries for this treatment.
Sir in this question I understand the first journal entry of 3000 cash dr and 3000 deferred income cr.
But when allocation of total revenue is being done here in the answer they deducted the whole 1500 from the total discounted revenue(27917) for the service plan instead of allocating an amount as per IFRS 15 which I calculated shud be 27917 x 1500/31500 and allocated the balancing fig of 26417 to the caravan.
Sir can u pls explain why my approach wud be wrong?
I think essentially it is because whilst the performance obligation has been fulfilled in the sale of the caravan, no performance obligation has been fulfilled as yet in regards to the service plan. Therefore the service plan element is essentially just sales in advance, so the whole lot goes to deferred income, where as the sale of the caravan can be recognised in full, although the receivable needs to be discounted for the time value of money.
Hope that helps.
Anything you want to add here sir? @P2-D2