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I am literally struggling with Revenue. I am stuck in the adjustments I think I am unable to understand the requirement asked by examiner.
Can you plz pass the entry and explain that too:Revenue includes $500,000 for the sale on 1st April 2006 of maturing goods to Westwood. The goods had a cost of $200,000 at the date of sale. Wellmay can repurchase the goods on 31 March 2008 for $605,000 (based on achieving a lender’s return of 10% per annum) at which time the goods are estimated to have a value of $750,000.
Thanks
To get you unstuck, you need to reverse the entry that has been put through to record the sale.
It’s not a sale! The risks and rewards have not been passed over
So, if it’s not a sale, what is it?
It must be a loan
What HAS been recorded is Dr Cash, Credit Revenue $500,000 and the goods have been excluded from inventory
What we must now do is reverse that entry so Dr Revenue and Credit Cash $500,000 and now record it as money received by way of loan, so Debit Cash and Credit Loan account $500,000
In addition, we need to bring the cost of those goods back into inventory so reduce Cost of Sales by $200,000 and increase closing inventory on the statement of financial position by $200,000
OK now?
OK with the above explanation but I am stuck in the whole topic. I some times get out with the answer but mostly I am just blank. I am doing well in contract revenue. But the adjustments as sale is recorded but a loan is in actual. I can judge that it is not sale but a loan. Now Further what ?? I stuck here!
It’s not a sale
It’s recorded as a sale
So un-record it
But we have received cash
But if it’s not a sale, then what is it?
It’s a loan
Yes, we’ve received cash
Yes, we want to record the cash as a loan
But we’ve already recorded it as a sale
So unrecord the sale (dr revenue) and record the loan (Cr loan)
Nothing to get stuck on!
I’m not sure what your question is asking!
Are you asking whether this situation is the only situation that is likely to be asked about revenue in an F7 exam?
If that’s your question ….. no, there are other revenue problems that may be asked! The examiner can ask anything he wants from IFRS 15
What I CAN say is that this situation has been asked on more than one occasion in the past. But so too has the situation where a company has recorded as a sale goods despatched on a sale-or-return basis
He’s also asked where revenue has been included where our company has sold some goods when acting as agent for another company (should not have included those as revenue in out records)
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