1. A telephone company (Celco) enters into a contract with its customer on 1 December 2020, under which the customer pays RM4,000 and Celco gives the customer a free mobile phone and 2 years’ telephone line service. The fair values of the mobile phone and the 2 years’ service are RM2,000 and RM3,000 respectively.

2. Seng Huan Berhad sells a furniture set to a customer for RM6,000 on 30 November 2020. Upon the request of the customer whose house is under renovation, Seng Huan holds the furniture set until 1 February 2021, when it is delivered to customer’s house, which is now renovated.

3. Hitachee Berhad enters into a contract with a customer to sell a television set with 2 years’ assurance warranty for RM5,000 on 1 May 2020. The customer pay another RM2,000 to buy a 3-year service warranty to cover years 3, 4 and 5.

4. Teguh Berhad enters into a contract to deliver Machine X and Machine Y to a customer for RM200,000. The contract requires Machine X to be delivered first. Customer is given 3 months credit period and is payable upon the delivery of the machine. Teguh Berhad has identified two performance obligations and allocated RM80,000 to Machine X and RM120,000 to Machine Y. Machine X was delivered on 1 November 2020 and Machine Y was delivered on 1 December 2020.

5. Zumba Club operates a health club exclusively for its members. To be a member of Zumba Club, one has to pay a life membership fee of RM5,000 upfront. Membership entitles the member the right to use the facilities of Zumba Club for free of charge. Membership is not transferable. Zumba Club expects its members to remain active members for 10 years on average. During its first year of operation ended 31 December 2020, Zumba Club has recruited 100 members.

Required:

1. Discuss the accounting treatment of revenue recognition for each of the situation.

2. Prepare the related journal entries for each of the situation. Assume reporting period in each cases is 31 December 2020.

Answer rating: 100% (QA)

Revenue recognition is based on the concept of financial year Revenue is gener... View the full answer