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Sutherland Co Case

Information relevant to questions 116-120

Sutherland sold and installed a large item of machinery for $1,600,000 on 1 November 20X7. Included within the price was a 2 year servicing contract which has a value of $480,000 and a fee for installation of $50,000.

Sutherland works as an agent for a number of smaller contractors, earning commission of 5%. Sutherland’s revenue includes $18 million received from clients under these agreements with $17.1 in cost of sales representing the amount paid to the contractors

Sutherland sold a large number of vehicles to a new customer for $10 million on 1 July 20X7.  The customer paid $990,000 up front and agreed to pay the remaining balance on 1 July 20X8. Sutherland has a cost of capital of 6%

1. How much should be recorded in Sutherland’s revenue in its statement of profit or loss for the year ended 31 December 20X7 in relation to the large machinery sale?
2. Sutherland’s sales director is close to selling another large machine, offering free service, therefore selling the entire machine for $1,120,000. Sutherland never sells servicing separately

How should this discount be applied in relation to the sale of the machinery?

Sales element

Discount applied

Discount not applied










A. Machine
B. Installation
C. Service
3. What adjustment needs to be made to revenue in respect of the commission sales?
4. How much should initially be recorded in revenue in respect of the sale of vehicles in the statement of profit or loss for the year ended 31 December 20X7? Answer to the nearest $000.
5. On 31 December 20X7 Sutherland sold some maturing goods to a bank for $3 million. The estimated value of the goods at that date was $5 million, which is expected to keep rising. Sutherland keeps the goods on its premises and has the option to repurchase the goods on 31 December 20X9 for $3.63 million.
Which of the following outlines the correct treatment for the maturing inventory?

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