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Bold Ltd sells a dining table to a customer for $500. To encourage early payment for the dining table, Bold offers the following payment terms:20% discount if payment is received in 10 days10% discount if payment is received in 20 days Historically, 60 per cent of customers pay within 10 days, 30 per cent of customers pay within 20 days, and 10 per cent of customers pay on the due date.Applying the expected value approach, what is the revenue that Bold would recognise on the sale of the dining table in accordance with the requirements of AASB 15 Revenue from Contracts with Customers?

Question

Bold Ltd sells a dining table to a customer for $500. To encourage early payment for the dining table, Bold offers the following payment terms:20% discount if payment is received in 10 days10% discount if payment is received in 20 days Historically, 60 per cent of customers pay within 10 days, 30 per cent of customers pay within 20 days, and 10 per cent of customers pay on the due date.Applying the expected value approach, what is the revenue that Bold would recognise on the sale of the dining table in accordance with the requirements of AASB 15 Revenue from Contracts with Customers?

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Solution

To calculate the revenue that Bold Ltd would recognise on the sale of the dining table, we need to apply the expected value approach. This involves multiplying the price of the dining table by the probability of each payment term, and then summing these values.

  1. If the customer pays within 10 days, they receive a 20% discount. The revenue for this scenario is 500(120500 * (1 - 20%) = 400. The probability of this happening is 60%, so the expected value is 40060400 * 60% = 240.

  2. If the customer pays within 20 days, they receive a 10% discount. The revenue for this scenario is 500(110500 * (1 - 10%) = 450. The probability of this happening is 30%, so the expected value is 45030450 * 30% = 135.

  3. If the customer pays on the due date, they pay the full price of 500.Theprobabilityofthishappeningis10500. The probability of this happening is 10%, so the expected value is 500 * 10% = $50.

Adding these expected values together, the total revenue that Bold Ltd would recognise on the sale of the dining table is 240+240 + 135 + 50=50 = 425. This is in accordance with the requirements of AASB 15 Revenue from Contracts with Customers, which states that the transaction price (i.e., the amount of revenue to be recognised) should reflect the amount that the entity expects to be entitled to in exchange for the goods or services.

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