An entity sells a product to a customer for P121 that is payable 24 months after delivery. The customer obtains control of the product at contract inception. The contract permits the customer to return the product within 90 days. The product is new and the entity has no relevant historical evidence of product returns or other available market evidence. The cash selling price of the product is P100, which represents the amount that the customer would pay upon delivery for the same product sold under otherwise identical terms and conditions as at contract inception. The entity's cost of the product is P80. The entity estimates that the costs of recovering the products will be immaterial and expects that the returned products can be resold at a profit. The contract includes an implicit interest rate of 10 per cent (i.e., the interest rate that over 24 months discounts the promised consideration of P121 to the cash selling price of P100). The entity evaluates the rate and concludes that it is commensurate with the rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception.

An entity sells a product to a customer for P121 that is payable 24 months after delivery. The customer obtains control of the product at contract inception. The contract permits the customer to return the product within 90 days. The product is new and the entity has no relevant historical evidence of product returns or other available market evidence. The cash selling price of the product is P100, which represents the amount that the customer would pay upon delivery for the same product sold under otherwise identical terms and conditions as at contract inception. The entity's cost of the product is P80. The entity estimates that the costs of recovering the products will be immaterial and expects that the returned products can be resold at a profit. The contract includes an implicit interest rate of 10 per cent (i.e., the interest rate that over 24 months discounts the promised consideration of P121 to the cash selling price of P100). The entity evaluates the rate and concludes that it is commensurate with the rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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