Question

Wildhorse Company manufactures equipment. Wildhorse's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $210,000 to $1,500,000, and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment to perform to specifications. Wildhorse has the following arrangement with Winkerbean Inc. • Winkerbean purchases equipment from Wildhorse on May 2, 2020, for a price of $1,134,000 and contracts with Wildhorse to install the equipment Wildhorse charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Wildhorse determines that the installation service is estimated to have a fair value of $66,000. The cost of the equipment is $800,000. • Winkerbean is obligated to pay Wildhorse the $1,068,000 upon delivery of the equipment and the balance on the completion of the installation Wildhorse delivers the equipment on June 1, 2020, and completes the installation of the equipment on September 30, 2020. Assume that the equipment and the installation are two distinct performance obligations that should be accounted for separately. Allocate the transaction price of $1,134,000 among the performance obligations of the contract. Assume Wildhorse follows IFRS. (Round percentage allocations to 2 decimal places, e.g. 12.25 and final answers to 0 decimal places, e.g. 5,275.) Delivery equipment $ 1,071,630 Installation 62,370

Answer 1

As per IFRS-15, Revenue recognition, the revenue is recognized on the transfer of asset when the customer is able to use and obtain benefit from the asset (in the above question it directs to Sep 30 the day it got installed and available for use). On that particular time the performance obligation is met as expressed in the question , in this case the performance obligation is not only sale but also installation of the equipment.

Date	Account titles and explanation	Debit	Credit
May,2,2020	No entry
June,1,2020	Accounts Receivable Dr	1,134,000.00
	Sales Revenue Cr		1,071,630.00
	Unearned Revenue Cr		62,370.00
	(To record sales)
June,1,2020	Cost of goods sold	800,000.00
	Inventory		800,000.00
	(To record COGS)
Sep,30,2020	Cash a/c	1,134,000.00
	Accounts receivable		1,134,000.00
	No entry		0
	(To record cash received)