(b) Delta prepares financial statements to 30 September each year. Notes 1 and 2 provide information on revenue transactions relevant to the year ended 30 September 20X7.

Note 1 – Sale of product with right of return
On 1 April 20X7 Delta sold a product to a customer for $121,000. This amount is payable on 30 June 20X9. The manufacturing cost of the product for Delta was $80,000. The customer had a right to return the product for a full refund at any time up to and including 30 June 20X7. At 1 April 20X7, Delta had no reliable evidence regarding the likelihood of the return of the product by the customer. The product was not returned by the customer before 30 June 20X7 and so the right of return for the customer expired. On both 1 April 20X7 and 30 June 20X7, the cash selling price of the product was $100,000. A relevant annual rate to use in any discounting calculations is
10%. (7 marks)

Note 2 – Sale with a volume discount incentive
On 1 January 20X6 Delta began an arrangement to sell goods to a third party – entity B. The price of the goods was set at $100 per unit for all sales in the two-year period ending 31 December 20X7. However, if sales of the product to entity B exceed 60,000 units in the two-year period ending 31 December 20X7, then the selling price of all units is retrospectively set at $90 per item.

Sales of the goods to entity B in the nine-month period ending on 30 September 20X6 totalled 20,000 units and this volume of sales per month was not expected to change before 31 December 20X7.

However, in the year ended 30 September 20X7, total sales of the goods to entity B were 35,000 and based on current orders from entity B, the estimate was revised. The directors of Delta estimated that the total sales of the goods to entity B in the two-year period ending 31 December 20X7 would be more than 60,000 units. (6 marks)

Required:
Explain and show how the transactions in notes 1 and 2 would be reported in the financial statements of Delta for the year ended 30 September 20X7.

Note: The mark allocation is shown against the two transactions in the separate notes above.