Question
Pemberly Industrial Supplies sells valves to one large customer at a list price of $100 each. Under the contract, if the customer buys more than 1,000 valves in calendar 2026, the price for every valve bought in the year falls to $90; the rebate is paid after the year ends. The customer pays the list price for each delivery in cash.
| Quarter ended | Valves delivered | Pemberly's expectation at the quarter end |
|---|
| March 31, 2026 | 300 | The customer will buy more than 1,000 valves in 2026. |
| June 30, 2026 | 350 | The customer will buy more than 1,000 valves in 2026. |
| September 30, 2026 | 250 | The customer has lost a contract; total 2026 purchases will now be about 950 valves, so no rebate will be due. |
Required:
- Q1 Revenue — revenue recognised for the quarter ended March 31, 2026.
- Journal Entries — one entry at the end of each quarter. Use Cash, Sales Revenue and Refund Liability.
- Refund Liability — the refund liability at June 30, 2026.
- Statement Impact — the effect of the September 30 entry.
Statements in this challenge
- Q1 RevenueNumeric Answer
- Journal EntriesJournal Entry
- Refund LiabilityNumeric Answer
- Statement ImpactStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 15 — Revenue from Contracts with Customers
Apply the five steps in order: identify the contract, identify the performance obligations, determine the transaction price, allocate it to the obligations, and recognise revenue as each is satisfied. Most errors come from skipping straight to the amount without first separating the obligations.
Common mistakes
- Recognising the full contract price on delivery when a distinct service obligation is still outstanding.
- Allocating the transaction price other than on relative stand-alone selling prices.
- Recognising revenue when cash is received rather than when control transfers.
Further readingIFRS 15: the five-step model