Nandina Inc.offers a cash rebate of Rs50 on each Rs200 package of biscuits sold during the last three months of 2011.Historically, 30% of the company's customers mail in the rebate form.During the last three months of 2011, 5,500,000 packages of biscuits are sold, and 1,050,000 Rs50 rebates are mailed to customers.What is the rebate expense and liability, respectively, shown on the company's 2011 financial statements?

Question

Quizplus · Accepted Answer

The rebate expense is calculated as 30% of 5,500,000 packages multiplied by Rs50, which equals Rs82,500,000. The liability is the difference between the expected rebates (30% of 5,500,000 packages) and the actual rebates mailed (1,050,000), multiplied by Rs50, which equals Rs30,000,000.