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1
Q9
Part (a)
Criscoes Homeware Limited operates throughout New Zealand and provides a customer
loyalty programme in which customers are granted loyalty points when they spend a specified
amount on home utensils. These points can then be redeemed to purchase further goods from
the company’s departmental stores.
During the reporting period ended 31st December 2014 the company awarded 500,000 points
to its customers. The fair value of each loyalty point is estimated to be $1. When the awards
scheme was set up, the management of the company expected 85% of these points to be
redeemed. By the 31st December 2014, customers have redeemed 255,000 points in exchange
for goods. The cost of the goods exchanged during the year ended 31st December 2014 was
$180,000.
During the reporting period ending 31st December 2015, the company revised its expectations
and expected 90 per cent of the points to be redeemed. For the reporting period ending 31 st
December 2015, another 190,000 of the points were redeemed. The cost of the goods
exchanged during the year ended 31st December 2015 was $120,000. During the reporting
period ending 31st December 2016, a further 25,000 points were redeemed. The company does
not expect any more points to be redeemed after the reporting period ending 31 st December
2016. The cost of the goods exchanged during the year ended 31 st December 2016 was
$7,000.
Required:
i.
Prepare the journal entries to account for the loyalty points for the year ended 31 st
December 2014.
ii. Prepare journal entries (without narrations) to account for the redemption of the
loyalty points and the cost of good exchanged for the years ended 31 December 2014,
31st December 2015 and 31 December 2016. Part (b)
On 1 October 2013, Hamilton Motors Limited sold a motor vehicle for $24,018. The terms of
the sale requires the purchaser to make three yearly payments of $10,000, the first one to be
made on 30 September 2014. Hamilton Motors charges interest at the rate of 12% per annum
on any outstanding balances of the sales price.
Required:
i.
NZIAS 18 provides the criteria for recognition of revenue in relation to the sale of
goods. State the conditions that must be satisfied before revenue from sale of goods
can be recognized.
ii. Prepare an amortization schedule to show the annual payments, interest revenue and
principal amounts received by Hamilton Motors limited. iii. Prepare general journal entries for Hamilton Motors for the years ended 30 September
2014, 30 September 2015 and 30 September 2016 using the net-interest method. 1 2
Q 10
For the year ended 31st December 2016, Garage Stores made cash sales of electrical appliance
for a value of $2,380,000. The cost of inventory sold was $1,785,000 (23,800 x $75). The
sales were subject to a right of return clause by which customers are entitled to a full refund
of the sales price if defective items purchased are returned to Garage Stores within 3 months
of purchase. The sales are also subject to a warranty clause by which Garage Stores
undertakes to repair any defective items if returned within a period of 6 months from date of
sale. During the year ended 31st December 2016, Garage Stores made refunds of $45,000 and
paid for repair costs of $22,000 for defective electrical appliances. As at 31 st December 2016,
the right of return privilege for sales amounting to $1,950,000 had expired. The right of return
privilege for the balance of sales made during the year ended 31 st December 2016 is expected
to expire in the following financial year.
Required:
Prepare journal entries in general journal form (with narrations) for the above transactions to
account for sales, right of return, refunds and repair expenses and state how balances in
allowance for right of return and right to recover accounts should be shown in the balance
sheet. Assume sales are only recorded after all right of return privileges have expired. 2 3
Q11
Huntly Development Limited commenced construction of a 3-Storey Shopping Mall in
Hamilton on 1st November 2013. It signed a fixed contract for $25 million and the project is to

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