Question $4$: Variable Consideration $-$ Right of Return

Organic Growth Company is testing a number of new agricultural seeds that it has recently harvested. To stimulate

interest, it has decided to grant five of its largest customers the unconditional right to return these products if not fully

satisfied. The right of return extends for four months. Organic Growth sells these seeds on account for $$1\mathrm{.}5$ million

$($cost $$800,000)$ on April $2,2023.$ Customers are required to pay the full amount due by June $15,2023.$ The company

follows IFRS.

Instructions

a$.$ Prepare the journal entry for Organic Growth at April $2,2023,$ assuming Organic Growth estimates returns of

$20\%$ based on prior experience.

b$.$ Assume that one customer returns the seeds on July $1,2023.$ Prepare the journal entry to record this transaction,

assuming this customer purchased $$100,000$ of seeds from Organic Growth and paid by June $15.$

c$.$ Briefly describe the accounting for these sales if Organic Growth is unable to reliably estimate returns.

d$.$ Repeat parts $($a$)$ and $($b$)$ under the assumiption that Organic follows ASPE.