Answer:
Part a
Allocation based on Stand Alone Selling Prices :
- 4 - door Sedan and the 3 years maintenance contract = $6,400
- Cash incentive = $100
Part b
Journal entry :
Debit : Cash $130,000
Credit : Revenue - 4 - door Sedan $128,000
Credit : Revenue - Cash incentive $2,000
Step-by-step explanation:
It is important to identify the step in IFRS 15 - Revenue from Contracts with Customers, which is affected by the question.
Here, Step 2 - Identify the performance obligation in the contract, Step 3 - Determine the Transaction Price, Step 4 - Allocate the Transaction Price to the Performance obligation and Step 5 - Recognize the Revenue as or when the Performance Obligation is Satisfied. These are explained and applied as follows :
Step 2 - Identify the performance obligation in the contract.
Here, identify the individual promises (Performance Obligations) that the entity has committed to transfer to the customer.
Also the entity identifies each performance obligation that is distinct, or a series of distinct Goods or Services that are substantially the same and have the same pattern of transfer to the customer.
So, the performance obligations are as follows :
- 4 - door Sedan and the 3 years maintenance contract(these can not be consumed independently from one another)
- Cash incentive (can be consumed independently from the rest of the performance obligations)
Step 3 - Determine the Transaction Price
Transaction price is the consideration the entity expects to be entitled to in exchange of goods or services transferred to the customer.
Transaction Price is $6,500 ($6,000 + $400 + $100)
Step 4 - Allocate the Transaction Price to the Performance obligation
Allocation of Transaction Price is done based on Stand Alone Selling Prices.
Stand alone selling prices have already been identified :
- 4 - door Sedan and the 3 years maintenance contract = $6,400
- Cash incentive = $100
Step 5 - Recognize the Revenue as or when the Performance Obligation is Satisfied
Stand alone for 20 vehicles :
- 4 - door Sedan and the 3 years maintenance contract = $6,400 x 20 = $128,000
- Cash incentive = $100 x 20 = $2,000
Journal entry :
Debit : Cash $130,000
Credit : Revenue - 4 - door Sedan $128,000
Credit : Revenue - Cash incentive $2,000