SumOne Limited is a retail store with a 30 June year-end.
The company recorded the following:
2021 (Rands)
Sales – May
220 000

Sales – June
360 000

Refunds paid out in current year (relating to the prior year provision)
53 880

Refunds provision balance on 30 June 2020
55 850

You can assume all sales are on credit and that SumOne Limited applies a 25% markup on the cost price of all goods.

The company’s refund policy states that customers can return goods within 60 days (two months) of purchase if they can provide proof of purchase. Experience shows that 8% of sales are returned in the first month following the sale, and 5% are returned in the second month.

REQUIRED:
1.1) Briefly discuss the general recognition and measurement principles that SumOne Limited will apply to their revenue transactions in terms of the requirements of IFRS 15.

1.2) Prepare the journal entries to account for the May 2021 and June 2021 sales in the records of SumOne Limited for the financial year ended 30 June 2021.

1.3) Assuming that only 7% of the May 2021 sales were returned in June 2021. Prepare the journal entries to account for the returns in the records of SumOne Limited for the financial year ended 30 June 2021.

1.4) Prepare the short-term provisions (provisions for refunds) note to the financial statements of SumOne Limited for the financial year ended 30 June 2021. Comparative amounts are not required.

Answer rating: 100% (QA)

Step 1 Journal entry It refers to the process where the business transactions are recorded in the bo... View the full answer