IFRS – 15 (Illustrative Examples - General)

1. Manual Company sells goods to Nolan Company during 2012. It offers Nolan the following rebates
based on total sales to Nolan. If total Sales to Nolan are 10,000 units, it will grant a rebate of 2%. If it
sells upto 20,000 units, it will grant a rebate of 4%. If it sells upto 30,000 units, it will grant a rebate of
6%. In the first quarter of the year, Manual sells 11,000 units to Nolan at a sales price of $110,000.
Manual, based on past experience, has sold over 40,000 units to Nolan and these sales normally take
place in the third quarter of the year. Prepare the journal entry to record the sale of the 11,000 units in
the first quarter of the year.

2. Travel Inc. sells tickets for a Caribbean cruise to Carmel Company employees. The total cruise
package costs Carmel $70,000 from ShipAway cruise liner. Travel Inc. receives a commission of 6% of
the total price. Travel Inc. therefore remits $65,800 to Shipway. Prepare the entry to record the
revenue recognized by Travel Inc. on this transaction.

3. Adani Inc. sells goods to Geo Company for $11,000 on January 2, 2012, with payment due in 12
months. The fair value of the goods at the date of sale is $10,000. Prepare the journal entry to record
this transaction on January 2, 2012. How much total revenue should be recognized on this sale in
2012?

4. Aamodt Music sold CDs to retailers and recorded sales revenue of $700,000. During 2012, retailers
returned CDs to Aamodt and were granted credit of $78,000. Past experience indicates that the
normal return rate is 15%. Prepare Aamodt’s entries to record (a) the $78,000 of returns and (b)
estimated returns at December 31, 2008.

5. Jansen Corp. shipped $20,000 of merchandise on consignment to Gooch Company. Jansen paid freight
costs of $2,000. Gooch Company paid $500 for local advertising, which is reimbursable from Jansen.
By year-end, 60% of the merchandise had been sold for $21,500. Gooch notified Jansen, retained a 10%
commission, and remitted the cash due to Jansen. Prepare Jansen’s entry when the cash is received.

6. Telephone Sellers Inc. sells prepaid telephone cards to customers. Telephone Sellers then pays the
telecommunications company, TeleExpress, for the actual use of its telephone lines. Assume that
Telephone Sellers sells $4,000 of prepaid cards in January 2012. It then pays TeleExpress based on
usage, which turns out to be 50% in February, 30% in March, and 20% in April. The total payment by
Telephone Sellers for TeleExpress lines over the 3 months is $3,000. Indicate how much income
Telephone Sellers should recog-nize in January, February, March, and April.

7. Jupiter Company sells goods on January 1 that have a cost of $500,000 to Danone Inc. for $700,000,
with payment due in 1 year. The cash price for these goods is $610,000, with payment due in 30 days.
If Danone paid immediately upon delivery, it would receive a cash discount of $10,000.
Instructions:
(a) Prepare the journal entry to record this transaction at the date of sale.
(b) How much revenue should Jupiter report for the entire year?

8. Shaw Company sells goods that cost $300,000 to Ricard Company for $410,000 on January 2, 2012. The
sales price includes an installation fee, which is valued at $40,000. The fair value of the goods is
$370,000. The installation is expected to take 6 months.
Instructions:
(a) Prepare the journal entry (if any) to record the sale on January 2, 2012.
(b) Shaw prepares an income statement for the first quarter of 2012, ending on March 31, 2012. How
much revenue should Shaw recognize related to its sale to Ricard?
9. Presented below are three revenue recognition situations:
(a) Grupo sells goods to MTN for $1,000,000, payment due at delivery.
(b) Grupo sells goods on account to Grifols for $800,000, payment due in 30 days.
(c) Grupo sells goods to Magnus for $500,000, payment due in two installments: the first installment
payable in 6 months and the second payment due 3 months later.
Instructions:
Indicate how each of these transactions is reported.
10. Organic Growth Company is presently testing a number of new agricultural seeds that it has recently
harvested. To stimulate interest, it has decided to grant to five of its largest customers the
unconditional right to return to these products if not fully satisfied. The right of return extends for 4
months. Organic Growth sells these seeds on account for $15,00,000 on January 2, 2012. Companies
are required to pay the full amount due by March 15, 2012.
Instructions:
(a) Prepare the journal entry for Organic Growth at January 2, 2012, assuming Organic Growth
estimates returns of 20% based on prior experience.(Ignore cost of goods sold)
(b) Assume that one customer returns the seeds on March 1, 2012, due to unsatisfactory performance.
Prepare the journal entry to record this transaction, assuming this customer purchased $100,000
of seeds from Organic Growth.
(c) Briefly describe the accounting for these sales, if Organic Growth is unable to reliably estimate
returns.

11. On June 3, Hunt Company sold to Ann Mount merchandise having a sales price of $8,000 with terms
of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on
June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5,
Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it
worthless. The same day, Hunt Company issued a credit memo covering the worthless merchandise
and asked that it be returned at company expense. The freight on the returned merchandise was $24,
paid by Hunt Company on June 7. On June 12, the company received a check for the balance due
from Mount.
Instructions:
(a) Prepare journal entries for Hunt Company to record all the events noted above under each of the
following bases.
(i) Sales and receivables are entered at gross selling price.
(ii) Sales and receivables are entered net of cash discounts.
(b) Prepare the journal entry under basis (2), assuming that Ann Mount did not remit payment until
August 5.

12. On May 3, 2012, Eisler Company consigned 80 freezers, costing $500 each, to Remmers Company. The
cost of shipping the freezers amounted to $840 and was paid by Eisler Company. On December 30,
2012, a report was received from the consignee, indicating that 40 freezers had been sold for $750
each. Remittance was made by the consignee for the amount due, after deducting a commission of
6%, advertising of $200, and total installation costs of $320 on the freezers sold.
Instructions:
(a) Compute the inventory value of the units unsold in the hands of the consignee.
(b) Compute the profit for the consignor for the units sold.
(c) Compute the amount of cash that will be remitted by the consignee.
 Revenue from Construction Contract - Examples

1. Turner, Inc. began work on a $7,000,000 contract in 2008 to construct an office building. During 2008, Turner, Inc.
incurred costs of $1,715,000, billed its customers for $1,200,000, and collected $960,000. At December 31, 2008, the
estimated future costs to complete the project total $3,185,000. Prepare Turner’s 2008 journal entries using the
percentage-of-completion method.

2. O’Neil, Inc. began work on a $7,000,000 contract in 2008 to construct an office building. O’Neil uses the
percentage-of-completion method. At December 31, 2008, the balances in certain accounts were: Construction in
Process $2,450,000; Accounts Receivable $240,000; and Billings on Construction in Process $1,200,000. Indicate
how these accounts would be reported in O’Neil’s December 31, 2008, balance sheet.

3. (Recognition of Profit on Long-Term Contracts) During 2007, Nilsen Company started a construction job with a
contract price of $1,500,000. The job was completed in 2009. The following information is available.
2007 2008 2009
Costs incurred to date $400,000 $935,000 $1,070,000
Estimated costs to complete 600,000 165,000 0
Billing to date 300,000 900,000 1,500,000
Collections to date 270,000 810,000 1,425,000
Instructions:
(a) Compute the amount of gross profit to be recognized each year.
(b) Prepare all necessary journal entries for 2008.

4. In 2007, Steinrotter Construction Corp. began construction work under a 3-year contract. The contract price was
$1,000,000. Steinrotter uses the percentage-of-completion method for financial accounting purposes. The income
to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the
contract. The financial statement presentations relating to this contract at December 31, 2007, are shown below:
Balance Sheet
Accounts receivable—construction contract billings $21,500
Construction in process $65,000
Less: Contract billings 61,500
Cost of uncompleted contract in excess of billings 3,500
Income Statement
Income (before tax) on the contract recognized in 2007 $18,200
Instructions:
(a) How much cash was collected in 2007 on this contract?
(b) What was the initial estimated total income before tax on this contract?

5. (Recognition of Profit ,Percentage of Completion) During 2007, Nilsen Company agreed to construct a Building
with a contract price of $1,000,000. The following information is available.
2007 2008 2009
Costs incurred to date $280,000 $600,000 $785,000
Estimated costs yet to be incurred 520,000 200,000 0
Customer billings to date 150,000 400,000 1,000,000
Collection of billing to date 120,000 320,000 940,000

Instructions:
(a) (1) Compute the amount of gross profit to be recognized in 2007 and 2008, assuming the percentage-of
completion method is used, and (2) Prepare all necessary journal entries for 2008
(b) For 2008, show how the details related to this construction contract would be disclosed on the balance sheet
and on the income statement.

6. (Recognition of Profit on Long-Term Contract) Shanahan Construction Company has entered into a contract
beginning January 1, 2007, to build a parking complex. It has been estimated that the complex will cost $600,000
and will take 3 years to construct. The complex will be billed to the purchasing company at $900,000. The
following data pertain to the construction period.
 2007 2008 2009
Costs incurred to date $270,000 $420,000 $600,000
Estimated costs to complete 330,000 180,000 0
Progress billing to date 270,000 550,000 900,000
Collections to date 240,000 500,000 900,000

Instructions:
(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized
during each year of the construction period.

7. (Recognition of Profit and Entries on Long-Term Contract) On March 1, 2007, Chance Company entered into a
contract to build an apartment building. It is estimated that the building will cost $2,000,000 and will take 3 years
to complete. The contract price was $3,000,000. The following information pertains to the construction period.
2007 2008 2009
Costs incurred to date $600,000 $1,560,000 $2,100,000
Estimated costs to complete 1,400,000 390,000 0
Progress billing to date 1,050,000 2,100,000 3,000,000
Collections to date 950,000 1,950,000 2,750,000

Instructions:
(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized
during each year of the construction period.
(b) Prepare all necessary journal entries for 2009.
(c) Prepare a partial balance sheet for December 31, 2008.

8. (Recognition of Profit and Balance Sheet Presentation, Percentage-of-Completion) On February 1, 2007, Hewitt
Construction Company obtained a contract to build an athletic stadium. The stadium was to be built at a total
cost of $5,400,000 and was scheduled for completion by September 1, 2009. One clause of the contract stated that
Hewitt was to deduct $15,000 from the $6,600,000 billing price for each week that completion was delayed.
Completion was delayed 6 weeks, which resulted in a $90,000 penalty.
2007 2008 2009
Costs incurred to date $1,782,000 $3,850,000 $5,500,000
Estimated costs to complete 3,618,000 1,650,000 0
Progress billing to date 1,200,000 3,100,000 6,510,000
Collections to date 1,000,000 2,800,000 6,510,000

Instructions:
(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized
during the year 2007 - 2009.
(b) Prepare a partial balance sheet for December 31, 2008, showing the balances in the receivables and inventory
accounts.

9. (Long-Term Contract with Interim Loss) On March 1, 2007, Pechstein Construction Company contracted to
construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building
was completed by October 31, 2009. The annual contract costs incurred, estimated costs to complete the contract,
and accumulated billings to Fabrik for 2007, 2008, and 2009 are given below.
2007 2008 2009
Contract costs incurred during the year $3,200,000 $2,600,000 $1,450,000
Estimated costs to complete the contract at
December 31 3,200,000 1,450,000 0
Billing to Fabrik during the year 3,200,000 3,500,000 1,700,000

Instructions:
Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as
a result of this contract for the years ended December 31, 2007, 2008, and 2009. (Ignore income taxes.)