Nia Company is a retailer and has launched a promotional campaign wherein if customers

buy clothing with a single purchase of at least P4,000, the entity shall issue "40 discount
coupons" on selected items.

The coupons may be used for 2 months following the campaign. During the campaign, the
entity sold clothing worth P1,860,000 and issued 100 "40% discount coupons".

The entity expected that 70% of the coupons will be redeemed and customers using the
coupons buy clothing at an average price of P5,000.
Required:
1. Compute the stand-alone price of the discount coupons.
Average price of future purchases P 5,000

Multiply by number of discount coupons 100

Total Amount of future purchases 500,000

Multiply by percentage of discount 40%

Total discount on future purchases 200,000

Expected redemption 70%

Stand-alone selling price of coupons P 140,000

2. Allocate the transaction price to the products sold and the
discount coupons.

Stand-alone Fraction Allocated

Product sold P 1,860,000 186/200 P 1,729,800

Discount coupons 140,000 14/200 130,200

2,000,000 1,860,000
3. Prepare the journal entry to recognize the sale of the products and issue of
discount coupons.

Cash P 1,860,000
Sales P 1,729,800
Deferred revenue – coupons 130,200

4. Prepare the journal entry to recognize the redemption of coupons.

Cash P 210,000
Deferred revenue – coupons 130,200
Sales P 340,200
Total amount of future purchases P 500,000

Discount (500,000 x 40%) (200,000)

Net price 300,000

Expected redemption 70%

Cash received from customers P 210,000

Thank you!

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