ABC Limited supplies plastic buckets to wholesaler customers. As per the contract entered into between ABC Limited and a customer for the financial…

(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 (units) Probability Probability-weighted sales volume (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 (units) Sales price per unit (₹) Probability Probability-weighted sales value (₹) 9,000 90 15% 1,21,500 28,000 80 75% 16,80,000 36,000 70 10% 2,52,000 20,53,500 Average unit price = Probability weighted sales value/ Probability weighted sales volume = 20,53,500 / 25,950 = 79.13 per unit Revenue is recognised at 79.13 for each unit sold. First 10,000 units sold will be booked at 90 per unit and liability is accrued for the difference price of 10.87 per unit (₹ 90 - 79.13), which will be reversed upon subsequent sales of 15,950 units (as the question states that ABC Ltd. achieved the same number of units of sales to the customer during the year as initially estimated under the expected value method for the financial year 20X1-20X2). For, subsequent sale of 15,950 units, contract liability is accrued at 0.87 (80 – 79.13) per unit and revenue will be deferred. Journal Entries in the books of ABC Ltd. Particulars ₹ 1. Bank A/c (25,950 x 80) Dr. To Revenue A/c (25,950 x 79.13) To Liability (25,950 x 0.87) (Revenue recognised on sale of 25,950 units) 20,76,000 20,53,424 22,576 2. Liability (1,08,700 – 86,124) Dr. To Revenue A/c [25,950 x (80-79.13)] (On reversal of liability at the end of the financial year 20X1-20X2 i.e. after completion of stipulated time) 22,576 22,576