Question

Presented below are three revenue recognition situations. (a) Groupo sells goods to MTN for $901,000, payment due at delivery. (b) Groupo sells goods on account to Grifols for $879,000, payment due in 30 days. (c) Groupo sells goods to Magnus for $480,000, payment due in two installments, the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is $443,000. Indicate the transaction price for each of these situations and when revenue will be recognized.

Answer 1

Answer:

Groupo

Transaction Price                 When Revenue should be recognized

a. $901,000                          the delivery date

b. $879,000                          the sales date

c. $443,000                          the sales date

c. $37,000                            in the period interest is earned.

Explanation:

1) Data and Analysis:

a. Delivery date: Cash $901,000 Sales Revenue (MTN) $901,000

b. Sales date: Accounts receivable (Grifols) $879,000 Sales Revenue $879,000

c. Sales date: Accounts receivable (Magnus) $480,000 Sales Revenue $443,000 Deferred Interest Revenue $37,000

2) According to the IFRS 15 and ASC 606, Revenue from Contracts with Customers, revenue should be recognized when performance obligations have been met.