Page 25 - 19. COMPILER QB - INDAS 115

Q25. (NOV. 20)

ABC Limited supplies plastic buckets to wholesaler customers. As per the contract entered into between ABC
Limited and a customer for the financial year 2019-20, the price per plastic bucket will decrease
retrospectively as sales volume increases within the stipulated time of one year.

The price applicable for the entire sale will be based on the sales volume bracket during the year.
Price per unit (INR) Sales volume
90 0 — 10,000 units
80 10,001 —35,000 units
70 35,001 units & above
All transactions are made in cash.
(i) Suggest how revenue is to be recognised in the books of accounts of ABC Limited as per expected value

method, considering a probability of 15%, 75% and 10% for sales volumes of 9,000 units, 28,000 units and
36,000 units respectively. For workings, assume that ABC Limited achieved the same number of units of
sales to the customer during the year as initially estimated under expected value method for the financial
year 2019-20.
(ii) In case ABC Limited decides to measure revenue, based on the most likely method instead of expected
value method, how will the revenue be recognised in the books of accounts of ABC Limited based on above

available information? For workings, assume that ABC Limited achieved the same number of units of sales
to the customer during the year as initially estimated under most likely value method for the financial
year 2019-20
You are required to pass Journal entries in the books of ABC Limited if the revenue is accounted for as per

expected value method for financial year 2019-20.
SOLUTION

i) Determination of how revenue is to be recognised in the books of ABC Ltd. as per expected value
method

Calculation of probability weighted sales volume

Sales volume Probability Probability-weighted sales volume
(units) (units)
9,000 15% 1,350
28,000 75% 21,000
36,000 10% 3,600
25,950

Calculation of probability weighted sales value
Sales volume Sales price per unit Probability Probability-weighted sales
(units) (Rs) value (Rs)
9,000 90 15% 1,21,500
28,000 80 75% 16,80,000
36,000 70 10% 2,52,000

20,53,500
19. 24