BFA201 Financial Accounting

Subject Code :
BFA201
Country :
AU
University :
University of Tasmania

Answer:

Answer 1

According to accounting standard IFRS 15, an entity should recognise revenue when the agreed-upon goods or services are handed over to the customer at the transaction price (Ernst & Young, 2019). As per the available information, Rollerblades Inc receives orders from the customers on behalf of the other party who provides roller blades for rent and receives the payment. The company should recognise the revenue once a customer has made a purchase for renting the rollerblades and it is transferred to them.

Answer 2

Account name	Credit
To Commission on Sale A/c	20
To Vendor A/c	80
To Security Deposits A/c	50
(Commission on invoice booked along with refundable security deposit and the amount payable to the Vendor)

Answer 3

As per ASC 606, a principal is the one who has goods and services and can provide them directly to the customers, while an agent is the one who arranges for goods and services for customers from other parties (Nussbaum 2020). Here Rollerblades Inc is an agent who receives the commission on the sale from its principal. An agent should recognise as revenue the amount that it retains out of the gross amount billed to the customer and pay the rest to the principal, who in this case is the party providing roller blades on rent. On the other hand, the amount received as a security deposit should not be recognised as revenue as it is refundable to the customer on completion of the rent term.

Answer 4

Account name	Credit
To Commission on Sale A/c	10 4
To Vendor A/c	30
To Security Deposits A/c	50
(Commission booked on the invoice of $100 on which 20% discount has been allowed by the Vendor)

Answer 5

Account name	Credit	Debit
Security Deposit A/c	30	50
To Bank A/c	50	80
(Security deposit amount repaid to the customer on completion of rent)

Answer 6

Account name	Credit	Debit
Bank A/c	2000	2,200
To Profit & Loss A/c	2,200	1800
(A fully depreciated car sold for $2,200 fully booked as profit)

Answer 7

Account name	Credit
Convertible Notes A/c	100
To Common Stock A/c	0.10
To Securities Premium A/c	9,999.90
(Convertible notes amounting to $10,000 converted into 1000 shares of common stock of the company at par value of $0.0001 per share)

References

Ernst & Young, 2019. A closer look at IFRS 15, the revenue recognition standard. [ebook] Ernst & Young, p.478. Available at: <https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/ifrs/ey-applying-revenue-september-2019.pdf> [Accessed 16 February 2022].

Nussbaum, N., 2020. Revenue Recognition Standards Clarify Principal vs. Agent Considerations | Cohen & Company. [online] Cohencpa.com. Available at: <https://www.cohencpa.com/insights/articles/revenue-recognition-standards-clarify-principal-vs#:~:text=Generally%2C%20a%20principal%20provides%20goods,while%20an%20agent%20will%20not.> [Accessed 16 February 2022].

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Posted on : August 5th, 2022