Entity A sells a range of scooters. When purchasing a scooter, a customer can also purchase an extended warranty. The extended warranty takes effect after the manufacturer’s warranty ends. If at the time of purchasing a scooter, a customer does not purchase an extended warranty, the customer can purchase an extended warranty separately at a later stage. The combined sales

Chapter 18, Exercises #12

Entity A sells a range of scooters. When purchasing a scooter, a customer can also purchase an extended warranty. The extended warranty takes effect after the manufacturer’s warranty ends. If at the time of purchasing a scooter, a customer does not purchase an extended warranty, the customer can purchase an extended warranty separately at a later stage. The combined sales price for a scooter plus an extended warranty is €7,200. Separately, a scooter can be purchased for €6,900 and the extended warranty can be purchased for €600.


Required: 

(a) Explain how this transaction should be accounted for in Entity A’s financial statements. 

(b) Identify the conditions under which it would be appropriate to allocate the discount to only one performance obligation in the contract rather than to all performance obligations.

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Related Book For answer-question

International Financial Reporting And Analysis

8th Edition

Authors: David Alexander, Ann Jorissen, Martin Hoogendoorn

ISBN: 9781473766853