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Coffee Café opened for business on January 1, 2020. Coffee Café provides a customer reward program...

Coffee Café opened for business on January 1, 2020. Coffee Café provides a customer reward program through use of a punch card. If the customer buys 4 coffees, their 5th coffee is free. Customers pay $2 for a cup of coffee. Coffee Café reports under IFRS and coffee sales are material. In January, 2000 cups of coffee were sold for cash and an additional 100 free cups of coffee were provided that were redeemed so far under the program. (2100 cups of coffee provided in total.) Based on industry data, 60% of all customers will ultimately redeem a free coffee under this type of program. (ie. Café is expecting further free cups of coffee will be redeemed in future months.)

Required: (a) What is the TOTAL revenue recorded by Coffee Café for January 2020?

(b) What is the liability recorded relating to this program at January 31, 2020?

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Answer #1
Ans(a) AS per IFRS 15 for Retail Industry -offering Free goods
No of Coffee sold 2000 units
Free cup of Coffee redeemed= 2000*1/4 500 units
As per Industry free coffee redeem= 500 x 60% 300 units
Computation of Total Revenue
Prticluars Standalone sell price Revenue
cofee sold on Cash = 2000 x $2 $4,000.00 $3478.26 ($4000*$4000/$4600)
Free Cup of Cofee = 300 * $2 $600.00 $521.74 ($4000 x ($600/$4600))
$4,600.00 $4000.00
Ans(b) Liability Recorded for Free coffee as on 31st Jan 2020
Total Cup of Free coffee 300 units
No. of Units of coffee redeemed in Jan 100 units
Balance Cup of coffee 200 units
Revenue of 200 unit $400.00
($4000 x ($400/$4600))
Amount recorded as liability as on 31st Jan 2020 $347.83
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