HANDOUT : SCI PART III

1. Merit Corporation has an arrangement with its customers that, in any 12-month period ending March 31, if they
purchase goods for value of at least P 2,000,000, they will receive a retrospective discount of 2%. At the end of
the year December 31, Merit Corporation has made sales to a customer during the period April 1 to December 31
of P1,800,000. What amount of revenue should Merit Corporation report in its December 31 Profit or Loss
statement related to the above arrangement?

2. Loves Marketing Corporation sells merchandise with a cost of P300,000 to Intel Corporation for P 420,000 and a
credit period of six months. Loves Marketing Corporation normal selling price would have been P375,000 with a
credit period of one month and with a discount of P15,000 for cash on delivery. What amount of revenue from
sales should Loves Marketing Corporation recognize?

3. Real Service Company sells some equipment, the cash price of the equipment is P400,000 but it was sold for
P560,000 with a commitment to service the equipment for two years, with no further chargers. What amount of
revenue should Real Service Company recognize on the date of sale?

4. P.O. Marketing Company has manufactured a machine specifically to the design of its customer. Any other party
could not use the machine. P.O. Marketing Company has never manufactured this type of machine before and
expects a number of faults to materialize in its operation during its first year of use, which P.O Marketing Company
is contractually bound to rectify at no further cost to the customer. The nature of these faults could well be
significant. As of December 31, the machine has been delivered and installed. The customer was invoice for
P500,000(contract price) and the cost incurred up to the point of installation was P325,000. What amount of
revenue from sales should P.O Marketing Company recognize on December 31, 2014?

5. Mix Company, a toy retailer sells toy for P100. A voucher entitling the bearer to a discount of P50 on a subsequent
purchase of the same type of toy is issued with each sale. The retailer has a historical experience that for every
two voucher issued, one is redeemed. Mix company has sold 1,000 toys and has issued 1,000 voucher as of
December 31, 2014.

a. Using the residual method of allocating proceeds, what amount of revenue from the sale of toys should
Mix Company recognize in its statement of profit or loss on December 31, 2014?
b. Using the relative fair value method of allocating proceeds, what amount of revenue from the sale of toys
should Mix Company recognize in its statement of profit or loss on December 31, 2014?

6. Gallant Corporation, a distributor of machinery, bought a machine from the manufacturer in November 2014 for
P200,000. On December 30, 2014, Gallant sold this machine to Accord Company for P300,000 under the following
terms: 2/30, 1/60, n/90. However, Accord Company had the right to return this machine to Gallant if Accord’s
obligation to Gallant would be cancelled. In Gallant’s net sales for the year ended December 31, 2014, how much
should be included for the sale of this machine?
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7. The net sales of Grass manufacturing Company in 2014 is P580,000. The cost of goods manufactured is P480,000.
The beginning inventories of Goods in Process and Finished Goods are P82,000 and P65,000 respectively. The
ending inventories are: Goods in Process – P75,000, Finished Goods – P55,000. The selling expenses and General
and Administrative expenses are 5% and 2.5% of Cost of Sales, respectively. How much would be the net profit
before tax in the year 2014?