Hi Mike,
Please explain the working of qestion1 in mini exercises revenue.
Question 1 Revenue includes $16 million for goods sold to a customer on 1 October, 2008. The terms of the sale are that the company will incur ongoing service and support costs of $1·2 million per annum for three years after the sale. The company normally makes a gross profit of 40% on such servicing and support work. Ignore the time value of money.
What adjustment is necessary to the financial statements as at 31 March, 2009?
Thank you so much.
Really appreciate all this help.
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Revenue mini exercises
Just worked it out.
1.2m * 6/12 gives 600000
plus 40% gross profit on 600000 gives 240000
total revenue from contract 1000000 1m
so revenue would be adjusted for 6m-1m gives 5 m.
is that correct way of doing it.
These kind of question are not covered in my revision kit .
9y ago#2Yes, that's fine
You arrive at the same answer if you work out that the true 'sale' is $10m and that 6 months' worth of $6 million servicing has also been earned
But your way is fine
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