IFRS - Are we good to go - W7 - IFRS 15 FMCG

TellieCo, an electronics manufacturer, enters into an arrangement with one of its major retailers, under which the retailer will receive a 5% discount on all purchases if the purchases by the retailer exceed € 100,000 for the annual period ending 31 December.

At 30 June, purchases by the retailer from TellieCo amount to €30,000. TellieCo forecasts that, due to the historic seasonality of the revenues (which peak prior to December in the run-up to the year-end holidays) and the launch of new products, the annual sales to the retailer will be in the range of €110,000 − 120,000.

How should TellieCo measure the revenue at 30 June ?

• 30,000

• 28,500

• 27,500

• 25,000

ShampooCo, a consumer products company, has a policy of paying ‘slotting fees’ to retailers, in order to have the products allocated to advantageous spaces in the retailers’ premises for a defined period of time. For example, the products are placed near the checkout counter, to be more noticeable for customers. ShampooCo sells products to CheapCo, a retailer, for €100,000. Simultaneously, it is invoiced €5,000 for a specific placement in the store which will generate additional sales.

How should the retailer account for slotting fees paid by the consumer products entity?

• COGS

• Selling expenses

• G&A

• A reduction of revenue

Death By Chocolate Ltd, a high street chain, is offering a promotion whereby a customer who purchases three boxes of chocolates at €20 per box in a single transaction in a store receives an offer for one free box of chocolates if the customer fills out a request form and mails it to them before a set expiration date. Death By Chocolate estimates, based on recent experience with similar promotions, that 80% of the customers will complete the mail-in rebate required to receive the free box of chocolates.

How is a ‘buy three, get one free’ transaction accounted for and presented by Death By Chocolate?

• Death By Chocolate would recognise revenue of €60 when control of the three boxes of chocolates transfers.

• Death By Chocolate would recognise revenue of €45 when control of the three boxes of chocolates transfers. Management would allocate € 15 to the undelivered box and recognise revenue on delivery.

• Death By Chocolate would recognise revenue of €44 when control of the three boxes of chocolates transfers. Management would allocate € 16 to the undelivered box and recognise revenue on delivery.

• Death By Chocolate would recognise revenue of €47.37 when control of the three boxes of chocolates transfers. Management would allocate € 12.63 to the undelivered box and recognise revenue on delivery.

Woolly has launched a campaign of selling gift cards for the upcoming holiday season: Gift cards are valid for up to one year from the date of purchase and only at Woolly outlets; furthermore, the customer cannot obtain a cash reimbursement for unspent amounts or unused cards. Unspent amounts after a year are kept by the company.

Woolly expects 10% of the gift card’s value to expire unused, based on historical trends.

Woolly has no obligation to remit unused gift card amounts to end-customers or to a third party (for example, government).

60 end-consumers purchase €100 gift cards on 30 August.

Should Woolly recognise revenue on the sale of gift cards or on their redemption?

• Revenue recognition occurs at date of selling gift cards

• Revenue recognition occurs on redemption of gift cards by a consumer in relation to products sold and not record breakage revenue at each period end

• Revenue recognition occurs on redemption of gift cards by a consumer in relation to products sold and record breakage revenue at each period end

Woolly has launched a campaign of selling gift cards for the upcoming holiday season: Gift cards are valid for up to one year from the date of purchase and only at Woolly outlets; furthermore, the customer cannot obtain a cash reimbursement for unspent amounts or unused cards. Unspent amounts after a year are kept by the company.

Woolly expects 10% of the gift card’s value to expire unused, based on historical trends. Woolly has no obligation to remit unused gift card amounts to end-customers or to a third party (for example, government).

60 end-consumers purchase €100 gift cards on 30 August. Before the 31 December year-end, end-customers purchase €3,600 of product using the gift cards. How should “breakage” be accounted for?

• Dr. Contract Liability – Gift Card (B/S) : 4,000

  Cr. Products Sales (P/L) : 3,600

  Cr. Breakage Revenue (P/L) : 400

• No breakage

  Dr. Contract Liability – Gift Card (B/S) : 4,000

  Cr. Products Sales (P/L) : 4,000

• Dr. Contract Liability – Gift Card (B/S) : 4,200

  Cr. Products Sales (P/L) : 3,600

  Cr. Breakage Revenue (P/L) : 600

• No breakage

  Dr. Contract Liability – Gift Card (B/S) : 6,000

  Cr. Products Sales (P/L) : 6,000

Screens Inc, an electronics manufacturer has an arrangement with a retailer to sell televisions and arrange for the shipping. The delivery terms state that legal title and risk of loss passes to the retailer when the televisions are provided to the carrier. The retailer does not have physical possession of the televisions during transit, but has legal title at shipment and therefore can redirect the televisions to another party.

Screens is also precluded from selling the televisions to another customer once the televisions have been picked up by the carrier at Screens’ shipping dock.

How many performance obligations ("PO") does Screens have and when should it recognize revenue?

• Only one PO and recognise revenue when deliver the products to retailers

• 2 PO: sale of the television and shipping service and recognise revenue when control transfers to the retailer

• 2 PO: Revenue recognition for sale of televisions when deliver goods to carrier and revenue recognition for shipping services when performance occurs, usually over the shipping period

• 2 PO: Revenue recognition for sale of televisions when control transfers to the retailer and revenue recognition for shipping services when performance occurs, usually over the shipping period

What is NOT an indicator of an entity acts as a principal?

• The entity is primarily responsible for providing specified goods or services

• The entity has inventory risk

• The entity has discretion in establishing prices for specified goods or services

• None of them

All sales made by Stripeys include a right of return. Stripeys sells 100 shirts for €100 each. The shirts cost Stripeys €50 each to buy. End-customers can return the shirts, as new and in original packaging, within 28 days from the date of purchase for a full refund, provided that they are unused and saleable as new. Based on historical patterns, Stripeys has estimated that the probability-weighted expected value of returns is 10% of revenues. Stripeys does not expect to incur any costs to accept the return of the shirts, because the end-consumer will return shirts directly to the store.

How should Stripeys record revenue and expected returns associated with this transaction?

• Dr. Cash (B/S) : 10,000

  Cr. Products Sales (P/L) : 10,000

• Dr. Cash (B/S) : 10,000

  Cr. Products Sales (P/L) : 10,000

  Dr. Products Sales (P/L) : 1,000

  Cr. Liability – Customer refund (B/S) : 1,000

• Dr. Cash (B/S) : 10,000

  Cr. Products Sales (P/L) : 10,000

  Dr. Products Sales (P/L) : 500

  Cr. Liability – Customer refund (B/S) : 500

A payment to a customer that is not for a distinct goods and service is netted against review when:

• Recognise revenue for related goods or service

• Pay or promise to pay the consideration (which might also be implied)

• at the later of when Recognise revenue for related goods or service or Pay or promise to pay the consideration (which might also be implied)

• at the earlier of when Recognise revenue for related goods or service or Pay or promise to pay the consideration (which might also be implied)

When an entity makes a sale with a right of return it recognises…

• Revenue net of expected returns

• Liability for expected returns

• Asset for carrying amount of expected returns less recovery costs

• Revenue net of expected returns; Liability for expected returns; Asset for carrying amount of expected returns less recovery costs