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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
Answer by Anna is correct.
Revenue to be recognized in year ending is 31 Dec 2014:
$100 million * 0.8890 (PV of $1 for 3 years on 4%) = $ 88.9 million
Interest to be recognized for year:
i) Ending Dec 2015 $88.9 * 0.04 = 3.556 million (A/cs Receivables $92.456 m)
ii) Ending Dec 2016 $92.456 * .04 = 3.698 million (A/cs Receivables $96.154 m)
iii) Ending Dec 2017 $96.154 * .04 = 3.846 million (A/cs Receivables $ 100 m)
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