Question

Tianjin Growth Company is presently testing a number of new ag recently harvested. To stimulate interest it has decided to grant five o unconditional right to return these products four months. Tianjin Growth sells these seeds on January 3, 2020. Customers are required to pay the full amount due os company follows IFRS. Required a) Prepare the journal entry for Tianjin Growth at estimates returns of 20% based on prior experience. (3 marks) esently testing a number of new agricultural seeds that it has nterest, it has decided to grant five of its largest customers the ..o return these products if not fully satisfied. The right of return extends for Growth sells these seeds on account for $1.500.000 (cost $800,000) on ed to pay the full amount due by February 28, 2020. The y for Tianjin Growth at January 3, 2020, assuming Tianjin Growth b) Assume that one customer returns the seeds on February 1, 2020. Prepare the journal entry to record this transaction, assuming this customer purchased $100.000 of seeds on account from Tianjin Growth. (3 marks) c) Briefly describe the accounting for these sales if Tianjin Growth is unable to reliably estimate returns. (1 marks)

Answer 1

	Journal Entries - Right of Return
Date	Particulars	Debit	Credit
A)
3-Jan-20	Accounts Receivable	1500000
	Sales		1200000
	Refund Liability		300000
	(To record the sale of seed on account to customers and to record the possible return)
3-Jan-20	Cost of Goods Sold	640000
	Refund Asset	160000
	Inventory		800000
	(To record the cost of goods sold and making a provision for right to return)
B)
1-Feb-20	Refund Liability	100000
	Accounts Receivable		100000
	( To record the return of seeds)
	Inventory	53333
	Refund Asset		53333
	(To record the cost of goods returned (800000*100000)/1500000)

C. If Tianjin Growth is unable to reliably estimate returns, then it should avoid recording the revenue till the loss can be ascertained or till the return period expires.