Page 403 - SBR Integrated Workbook STUDENT S18-J19
P. 403
Answers
Example 3
Refunds
The customers are able to return the goods, so the consideration in the
contract is variable.
Thor must estimate the variable consideration it will be entitled to. Using past
experience, this is $197,000 ((20,000 – 300) × $10). This estimate can be
included in the transaction price because it is highly probable that a significant
reversal in revenue will not occur once the returns take place.
Thor has been paid for all the goods, so should recognise a refund liability of
$3,000 (300 × $10).
An asset of $1,200 (300 × $4 cost) should be recognised, as this represents
Thor’s right to the products once the customer returns them.
The entries required are as follows:
Dr Cash $200,000
Cr Revenue $197,000
Cr Refund liability $3,000
Dr Right to recover products $1,200
Dr Cost of sales (19,700 × $4) $78,800
Cr Inventories (20,000 × $4) $80,000
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