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What are the performance obligations

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Reference no: EM132420054

Problem: Comfort Inc. manufactures shelving units that are used in grocery stores and other businesses.  The company's shares trade on the Toronto Stock Exchange. Comfort's products range from simple shelving units to complex shelfing units containing numerous components. Unit selling prices range from $20,000 to $150,000. The installation process Comfort Inc. had the following arrangement with Lobeys Inc.

Lobeys purchases equipment from Comfort on July 30th, 2019. The selling price for the shelving units is $108,000 The installation service is estimated to have a fair value of $12,000. Comfort sold the shelving unit with installation to Lobeys for $115,000. The shelving units cost Comfort Inc. $45,000.

Lobeys is obligated to pay Comfort $23,000 upon delivery of the shelving units and the balance on October 1st.

Comfort Inc.delivers the equipment on August 29th, 2019, and completes the installation of the equipment on September 1st, 2019.

On October 1st Lobeys informs Comfort Inc. that they will be not be able to pay their account that is due. Lobeys and Comfort Inc. enter into an agreement that the account will be converted into a non-interest bearing promissory note to be repaid in one year from now. The maturity value of the note is $101,200. Lobeys Inc. is a bit of credit risk and typically borrows fund at a rate of 10%. Comfort is much more credit worthy and has various loans at 7% interest.

Required:

Question 1: What are the performance obligations?

Question 2: Explain when the revenue should be recognized for each performance obligation under IFRS. Support your answer by explaining why it should be recognized at the time you selected.

Question 3: Prepare the journal entries for 2019 and 2020.

Question 4: If the company followed ASPE when should the revenue be recognized for the sale of the shelving units and why?

Question 5: Peer evaluation

Reference no: EM132420054

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