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How to recognise the revenues

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Gym Equipment Manufacturers Ltd (GEM) manufactures and sells gym equipment. It also installs the gym equipment for their customers.

On 1 January 2020, Keeping Fit Gym in Auckland signed a contract to purchase a piece of personalised gym equipment from GEM Ltd. The purchase price in the signed contract is $39,000. GEM Ltd also offers a free installation service of the equipment to Keeping Fit.

The selling price of the same type of gym equipment, excluding the free installation, is $36,450. The installation of the equipment can also be done by registered manufacturers at $4,050.

On 10 January 2020, Keeping Fit paid the full amount, and on the same day, the equipment was delivered. The installation of the equipment was performed on the 20 January 2020.

Problem (a) Advise GEM Ltd on how to recognise the revenues in accordance with the 5-step model in NZ IFRS 15. (You are required to explain each step in the model with calculations).

Problem (b) Prepare relevant journal entries to recognise revenue for the above sale in terms of the 5- step model in GEM Ltd's books.

Reference no: EM132672352

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