Answer to Question #284546 in Accounting for Nkululeko

Question

QUESTION 1 (44 marks) SumOne Limited is a retail store with a 30 June year-end. The company recorded the following: 2021 (Rands) Sales – May 220 000 Sales – June 360 000 Refunds paid out in current year (relating to the prior year provision) 53 880 Refunds provision balance on 30 June 2020 55 850 You can assume all sales are on credit and that SumOne Limited applies a 25% markup on the cost price of all goods. The company’s refund policy states that customers can return goods within 60 days (two months) of purchase if they can provide proof of purchase. Experience shows that 8% of sales are returned in the first month following the sale, and 5% are returned in the second month. 4 REQUIRED: 1.1) Briefly discuss the general recognition and measurement principles that SumOne Limited will apply to their revenue transactions in terms of the requirements of IFRS 15. (4 marks)

Answer 1

1)The IFRS 15 standard applies only to the company's operations under contracts for the sale of products or services to customers.

2)In IFRS 15, there is no binding to documents or signatures for revenue recognition. Revenue is recognized when (or as) control of the goods is transferred to the buyer.

3)According to IFRS 15, the amounts of revenue in the financial statements should be shown separately by recognition periods (as the revenue of the current period and the revenue of previous periods).

4)According to the provisions of IFRS 15, revenue in the financial statements is recognized at the actual transaction price, which is calculated according to certain rules

5)Under IFRS 15, funds received from the buyer that do not meet the requirements set out in IFRS for recognizing them as revenue are recognized as deferred income.

6)The IFRS 15 standard is advisory in nature, and Western companies have the right to take into account revenue and reflect it in reporting according to their own rules