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IFRS 15Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIFRS 15L2 · Intermediate

Distributor: volume rebate, right of return and consideration payable to a customer

5 documents9 tasks≈ 75 min
0 / 13 items completed
Standards
IFRS 15 — Revenue from Contracts with Customers
Assistance levelHelp on demand · assistance on request
  • Method: on request
  • Checklist: on request
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Lumaris SAS (a fictitious entity) manufactures small household appliances. On 1 October 20X1, it signed a one-year framework agreement with Distrimax SA (a fictitious entity), a chain of stores that resells its appliances to consumers. The first deliveries took place in November 20X1. Case data: control of the appliances transfers to Distrimax on delivery. You are preparing, for the year ended 31 December 20X1, the determination of the transaction price of these deliveries and their accounting.

Your assignment

Identify the components of the consideration, estimate the variable consideration arising from the volume rebate and assess its constraint, determine the transaction price before taking returns into account, calculate the refund liability, the revenue and the asset for the right to recover products, record the entries and measure the impact on the financial statements. One document is not useful.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Intermediate level: help remains available, on demand.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 5 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 13) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

5 documents: open each one to read it.

Document 1Contract

Lumaris – Distrimax framework agreement

Lumaris – Distrimax framework agreement of 1 October 20X1, for the period from 1 October 20X1 to 30 September 20X2. List price: 100 per appliance, excluding VAT. Retrospective volume rebate calculated on net purchases of the period: 5% if purchases reach 20,000 appliances; 2% if they are between 12,000 and 19,999 appliances; no rebate below 12,000 appliances. To support the launch, Lumaris invoices from the outset at the price of the highest tier, i.e. 95 per appliance; if that tier is not reached, Distrimax will owe on 30 September 20X2 a price complement of 3 per appliance (2% tier) or of 5 per appliance (no rebate). Contribution by Lumaris to the costs of promoting its appliances in Distrimax stores: 4 per appliance delivered, deducted from each invoice; Distrimax organises its shelves freely and provides no identified service to Lumaris. Right of return: Distrimax may return unsold appliances within 60 days of delivery, against a refund of the net price paid, i.e. 91 per appliance. Payment at 30 days.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
List price per appliance€100.00
Price invoiced per appliance (highest tier)€95.00
Promotion contribution per appliance€4.00
Refund per returned appliance€91.00
Appliances delivered10,000 units
Amount invoiced€950,000.00
Contribution deducted from invoices€40,000.00
Amount collected€910,000.00
Complement if the 5% tier is reached€0.00
Probability of the 5% tier30%
Complement if the 2% tier is reached€30,000.00
Probability of the 2% tier50%
Complement if no rebate is earned€50,000.00
Probability that no rebate is earned20%
Expected return rate4%
Carrying amount of the appliances delivered€600,000.00
Carrying amount per appliance€60.00
Expected costs to recover€1,500.00
Recommended retail price€149.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort5

  • Lumaris – Distrimax framework agreement

  • Statement of deliveries and collections for the fourth quarter of 20X1

  • Memo from the sales department on the volume rebate

  • Memo on expected returns and inventories

  • Extract from a market study

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      9 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        What are the components of the consideration promised by Distrimax?

      2. Task 2Calculation

        Estimate the variable consideration arising from the volume rebate.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Estimate the variable consideration arising from the volume rebate.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Most likely amount of the price complement

      3. Task 3Professional judgement

        What amount of variable consideration do you include in the transaction price?

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        What amount of variable consideration do you include in the transaction price?

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Calculation

        Determine the transaction price before taking expected returns into account.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Determine the transaction price before taking expected returns into account.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Calculation

        Calculate the refund liability and the revenue.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the refund liability and the revenue.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Revenue

      6. Task 6Calculation

        Calculate the asset for the right to recover products and the cost of sales.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the asset for the right to recover products and the cost of sales.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Asset for the right to recover products

      7. Task 7Journal entries

        Record the entries for the year.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 2

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Journal entry · Journal entries

        Entry 2 of 2

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        4. Line 4

        5. Line 5

        TotalsDebit0Credit0

      8. Task 8Effects on the financial statements

        What is the impact of these entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      9. Task 9Conclusion

        Write the conclusion.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 13).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 15 §46
      • IFRS 15 §47
      • IFRS 15 §48
      • IFRS 15 §50
      • IFRS 15 §51
      • IFRS 15 §53
      • IFRS 15 §54
      • IFRS 15
      • IFRS 15 §56
      • IFRS 15 §57
      • IFRS 15
      • IFRS 15 §70
      • IFRS 15 §71
      • IFRS 15 §72
      • IFRS 15 §B20
      • IFRS 15 §B21
      • IFRS 15 §B23
      • IFRS 15 §B24