Makers Ltd. is engaged in the business of manufacturing a number of products including moulds, dies and machinery. They have a wide customer base in…

The entity applies the requirements in Ind AS 115 to the portfolio of 10,000 moulds because it reasonably expects that the effects on the financial statements to the portfolio would not differ materially from applying the requirements to the individual contracts within the portfolio. Since the contract allows a customer to return the products, the consideration received from the customer is variable. The entity considers on constraining estimates of variable consideration to determine whether the estimated amount of variable consideration of ₹ 43,65,000 (₹ 450 x 9,700 moulds not expected to be returned) can be included in the transaction price. The entity determines that although the returns are outside the entity's influence, it has significant experience in estimating returns for this product and customer class. In addition, the uncertainty will be resolved within a short time frame (ie the 30-day return period). Thus, the entity concludes that it is highly probable that a significant reversal in the cumulative amount of revenue recognised (i.e. ₹ 43,65,000) will not occur as the uncertainty is resolved (i.e. over the return period). The entity estimates that the costs of recovering the moulds will be immaterial and expects that the returned moulds can be resold at a profit. Upon transfer of control of the 10,000 moulds, the entity does not recognise revenue for the 300 moulds that it expects to be returned. Consequently, in accordance with paragraphs 55 and B21 of Ind AS 115, the entity recognises the following: (a) Revenue of ₹ 43,65,000 (₹ 450 × 9700 moulds not expected to be returned); (b) A refund liability of ₹ 1,35,000 (₹ 450 refund × 300 moulds expected to be returned); and (c) A return asset of ₹ 1,20,000 (₹ 400 × 300 moulds for its right to recover products from customers on settling the refund liability). Journal Entries ₹ ₹ Trade Receivables (Customer) Dr. 45,00,000 To Revenue 1,35,000 To Refund liability 43,65,000 (Being revenue recognised for the assured value and liability created for variable consideration) Return asset Dr. 1,20,000 To Cost of goods sold 1,20,000 (Being right to recover products from customers on settling the refund liability is accounted for)