Question
Northwind Tech sells industrial machines and related maintenance services, and uses a perpetual inventory system. The following events occurred during 2025.
| Date | Event |
|---|
| January 2 | Sold a machine bundled with a 2-year maintenance plan to Meridian Foods for $60,000 cash. Sold separately, the machine's standalone selling price is $52,000 and the plan's is $13,000. Allocate the transaction price to the two performance obligations on a relative standalone selling price basis (IFRS 15). The machine (cost $30,000) was delivered the same day; maintenance services are provided evenly over 24 months from January 2. |
| November 1 | Received a $9,000 advance from Ridgeline Farms for a machine to be delivered in February 2026. |
| December 1 | Shipped goods costing $8,000 to Coastal Retail on consignment. None of the goods had been sold by the consignee at December 31. (Reclassify the goods to Inventory on Consignment; no revenue is recognized.) |
| December 31 | Recorded the adjusting entry to recognize 2025 maintenance revenue on the Meridian Foods plan. |
Instructions:
Journalize the 2025 events, including the cost-of-sale entry for the January 2 machine delivery and the December 31 adjusting entry. (Round allocations to the nearest dollar.)
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 2 — Inventories; IFRS 15 — Revenue from Contracts with Customers
Work each transaction from the perspective stated in the question: the same shipment is a purchase to one party and a sale to the other, and the entries are not mirror images because only the seller recognises revenue and cost of sales. Read the credit terms and the freight terms before writing anything.
Common mistakes
- Ignoring the shipping terms — they decide who owns goods in transit and who bears the freight.
- Applying a settlement discount to the gross invoice when returns have already reduced the amount owed.
- Confusing a trade discount, which never enters the records, with a settlement discount, which does.
Further readingIAS 2: costing methods and NRV