EXAMPLES 1: REVENUE - Time value of money:

On 1 March 20.18 Lipton Ltd a Tea / Coffee manufacturer sells

a coffee machine for R150 000 to a customer on credit, on the
condition that the amount must be paid for on the 28 February
20.20. The financing component is significant. Lipton Ltd
incremental borrowing rate is 9% per annum. The customer’s
credit risk is 15% per annum.
Required:
Prepare the journal entries for the above transaction in the
books of Lipton Ltd for the years ending 20.18 and 2020.

EXAMPLE 2: Allocation of the transaction price:

Bugatti Ltd enters into an agreement with Mike for the sale of
their latest SUV 200 CRDi along with a four-year service plan for
a total of R900 000.
Any client may also acquire a SUV 200 Bugatti CRDi without a
service plan from Bugatti Ltd at a stand-alone selling price of
R860 000.
Bugatti Ltd regularly sells a 4 year service plan to their customers
at a stand-alone selling price of R60 000. The sale took place on
the 1 March 2018 and the entity has a February year end. Bugatti
Ltd maintain a GP % of 25%. Service intervals at the end of each
financial year.

REQUIRED:
Discuss and Journalise the above transactions in the books of
Bugatti Ltd for the years ending February 20.19 and 20.20:

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