010 On December 15, 2013, Rigsby Sales Co. sold a tract of land that cost $3,600
ID: 2580003 • Letter: 0
Question
010 On December 15, 2013, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2014, and December 15, 2015. Due to the significant uncertainty in collectibility, Rigsby appropriately uses the IFRS method for significant uncertainty to account for this transaction. Ignore interest charges. Rigsby has a December 31 year-end. In 2014, Rigsby would recognize realized gross profit of:11S//2/3 So9 ,o"(41o2on A. $0. B. $500,000. C $900,000. D. $2,000,000 s/n/s Isin/2o13 Dr.AIR Cr.Q.veu L L.Sm o.n Dr.ah sa…Explanation / Answer
Accoring to IFRS, we will follow Sales Under the Installment Method and according to this method we will record gross profit accoring to the G.P. Ratio and principal amount received in that year.
Principal Amount Received:
2013 = $500,000
2014 = $2,000,000
2015 = $2,000,000
In 2013
Profit Ratio = ($4,500,000 - $3,600,000) / $4,500,000 = 20%
GP in 2013 = 20% of Principal amount received = 20% * 500,000 = 100,000
GP in 2014 = 20% of Principal amount received = 20% * 2,000,000 = 400,000
In your answers $400,000 is not there, that means the question needs correction because according to IFRS $400,000 will be recosnized as Gross profit in 2014
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