Question

Presented below are three revenue recognition situations.

(a) Grupo sells goods to MTN for $900,000, payment due at delivery.
(b) Grupo sells goods on account to Grifols for $720,000, payment due in 30 days.
(c) Grupo sells goods to Magnus for $450,000, payment due in two installments: the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is $417,600.

Indicate the transaction price for each of these transactions and when revenue will be recognized.

Answer 1

Answer:

Explanation:

The transaction price in each case would be shown below:

(A) Transaction price - $900,000 and the revenue is recognized at the point of sale or on the date when the sale is made

(B) Transaction price - $720,000 and the revenue is recognized at the point of sale or on the date when the sale is made

(C) Transaction price - Present value should be transaction price i.e $417,600 and the remaining amount $32,400 ($450,000 - $417,600) would be recognized over the 24 months i.e 18 months + 6 months