Simon enters a contract with Linda on 1 July 2019 to sell an existing printer such that
Question:
Simon enters a contract with Linda on 1 July 2019 to sell an existing printer such that control of the printing machine is transferred in two years’ time. The contract has two payment options. The customer can pay $480,000 when the contract is signed or $600,000 in two years’ time when Linda gains control of the printer. The interest rate implicit in the contract is 7.8% to adjust for the risk involved in the delay in payment. However, Simon’s incremental borrowing rate is 6%. The customer paid $480,000 on 1 July 2019 when the contract was signed.
Required:
Discuss how the contract should be accounted for under AASB 15 in Simon’s books. The discussion should include the accompanying treatment up to 30 June 2021 including the relevant journal entries.
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella