ExpertMedium2 marksMultiple Choice
ACCA · Question 34 · Recording Transactions: Sales and Purchases
Section A
A company purchases goods with a list price of $10,000. The supplier offers a 5% trade discount and a 2% early settlement discount if payment is made within 10 days. The company intends to take the settlement discount.
At what amount should the purchases be initially recorded?
Section A
A company purchases goods with a list price of $10,000. The supplier offers a 5% trade discount and a 2% early settlement discount if payment is made within 10 days. The company intends to take the settlement discount.
At what amount should the purchases be initially recorded?
Answer options:
A.
$10,000
B.
$9,500
C.
$9,310
D.
$9,300
How to approach this question
1. Deduct the trade discount first. 2. If the settlement discount is expected to be taken, deduct it from the net amount to find the initial recording value.
Full Answer
C.$9,310✓ Correct
Under IFRS 15 principles, variable consideration (like a settlement discount) is estimated at inception.
List price = $10,000.
Less Trade Discount (5%) = $500. Net = $9,500.
Less Expected Settlement Discount (2% of $9,500) = $190.
Initial purchase value = $9,500 - $190 = $9,310.
Common mistakes
Calculating the 2% discount on the original $10,000, or not deducting the settlement discount at all.
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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