Rendina 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, 7,700,000 packages of biscuits are sold, and 1,470,000 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

Total rebate amount = (Number of packages sold / Rs200 per package) x Rs50 rebate per package
= (7,700,000 / 200) x 50
= Rs1,925,000
Number of rebates expected to be mailed in = 30% of customers x Number of packages sold
= 0.3 x 7,700,000
= 2,310,000
Rebate liability = Number of rebates expected to be mailed in x Rebate amount
= 2,310,000 x 50
= Rs115,500,000
Rebate expense = Actual rebates mailed in x Rebate amount
= 1,470,000 x 50
= Rs73,500,000
Therefore, the rebate expense and liability on the company's 2011 financial statements are Rs73,500,000 and Rs115,500,000, respectively. Hence, option A is correct.