Emefa Ltd is a manufacturing and retail company which prepares financial statements in accordance with IFRS up to 31st December each year. In order to improve sales on one of its older products, Emefa offered a promotion named 'Something for free'. The promotion included free maintenance services for the first two years. On 1st October, 2019, under the promotional offer, Emefa Ltd sold goods to a Supermarket chain for $4.4million. A two-year maintenance contract would normally be sold for $0.5million and the list price of the product would normally be $5million. The transaction has been included in revenue at $4.4million. Required: In accordance with IFRS 15; Revenue from Contracts with Customers, justify the appropriate accounting treatment for the above transaction in the financial statements of Emefa Ltd for the year ended 31st December, 2019. Please use the 5-step model.
Emefa Ltd is a manufacturing and retail company which prepares financial statements in accordance with IFRS up to 31st December each year. In order to improve sales on one of its older products, Emefa offered a promotion named 'Something for free'. The promotion included free maintenance services for the first two years.
On 1st October, 2019, under the promotional offer, Emefa Ltd sold goods to a Supermarket chain for $4.4million. A two-year maintenance contract would normally be sold for $0.5million and the list price of the product would normally be $5million. The transaction has been included in revenue at $4.4million.
Required: In accordance with IFRS 15; Revenue from Contracts with Customers, justify the appropriate accounting treatment for the above transaction in the financial statements of Emefa Ltd for the year ended 31st December, 2019. Please use the 5-step model.
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