Please I need help with this and please don\'t tell it needs information, becuas
ID: 2551018 • Letter: P
Question
Please I need help with this and please don't tell it needs information, becuase it's very clear and complete. by the way, this is the fifth time i am posting this question...
Requirement:
The Net Sales revenue reported is derived from the sale of products. Each year Findley records from cash sells, sells on account and completed purchase orders. During 2016 and 2017, approximately 12% of the revenue recorded was generated from purchase orders for which customers have not taken possession of the products. However, the products have been segregated from other products in the warehouse and are available for the customers to pick-up. The customers have various reasons for not taking possession of the products:
1) a lack of available space for inventory,
2) current inventory levels are high, but it is anticipated that the inventory will decrease in the coming months and
3) the production schedule has been delayed, so the customer is not ready for the products, yet. The Controller of Findleyhas stated that only a small portion of the revenue is derived from customers that have not picked up their products, thus the financial statements accurately reflect Findley’s financial performance.
Please prepare a memo that either supports or refutes the Controller’s position including the following sections:
· Relevant Facts
· Accounting Issue
· Conclusion
· Support
· Actions to be Taken
NOTE: This question does NOT need to be clarified and it does NOT need more information.
K3] - – EEFGH| KLMAqR S Akcetnt ,520 11,201 $8,769 9,432 $11,965 11,355 9,716 SE,18 $,174 9,457 11,402 $15,023 14,372 $3,645 s,82 $7,287 s,97 9 Accumulated depreciation Mon current a5t $13,470 $12,549 $16,316 $12.70 $13,736 $11,315 $10,172 $10,430 $9,031 $11,969 $8,714 $13,183 $18,310 $18,04; $9,434 $7,955 $7,437 $7,514 10 Lang-tern receivable Mon-current sit $250 $25 2 3 2 37 25? $3,527 3,435 2,05 $159 $230 $2,71 .jp? $2,12 ;,945 $1,40 1,259 $4,542 $1,479 11 Ocfcfcd lax5 eks Ngn-currcrika; E $25 $75 $2] $24 $ $$19 $337 $261 $26 46 :35 :265 $25 $29 5 179 19 $135 5 187 12 Accounts payable Current liability 2,250 3,426 3,565 $2,797 3,WJs 4,824 $5,252 $3,881 $2,121 2,433 4,03 >4,565 $5,9g ;5,413 $3,775 $2,911 2,791 13 AccTuecd expenscs CuTIcent liability $1,7s 1,544 1999 $1,492 $1,04 4,437 34,919 2,2? $1,92 1,491 3, 3[ $3,495 $4,336 3,710 $2,855 92,034 $2,443 3 2,342 1* Tax6* payable curr#n; liability $375 }75 $10518,30530 5777 7 59 $571 ,74 $ig5 :57 $1,74; $4,413 $35 $524 502 15 Current perlisrl sf Long-kterrra Currct liability $500 $ $59$ $47 $07 $2,82z $2,023 $1,5sg $349 $49 $1.974 $1.62? $1,72 $ 347 $1,Opg $1107 1,11 $1,242 16 Lung-term liability Non-current liability $5,010 $5,501 $6,050 $4,740 $5,037 $7,726 $8,05 $6,195 $3,531 $4,830 $g,405 $7,294 59,547 ;8,BUg $6,898 $4,409 4,454,455 17 Ocfcrred tax liabilitic! Man cuTIcrit liability $30 21034145332 $354 3,050 3,199 1,39 $20 2 5g 2,543 $1,389 $2,139 1,745 $1,4331,03? $1,459 $1,409 1 Preferred tock Equity $1,0. 1,d $1,202 $4 $1,017 $2,54 $2,201 $1,724 $$83 $2d $1,954 1,BRE 2,27 2,220 $1,352 $1,19 $1,2931,240 19 corrnern stock Equity $ig $ $657 $21 $ $20 $293 $236535 $4g $477 $4C $6 50630623. 22 206 0 APIC - common stock Equity 3,0756253,717 2,315 3,134 1,173611,432 1,582 1,70257:1,49 2,365:2,37541561,0741,02 21 Relained carnings Equity 7,35; 6,760 $5,644 7,51 5,121 $11.47] $15,164$10,311 $g,199 6,774 10,739 $11,477 15,495 $12,66159,537 $6,07? $7,733 7,414 22 D%ridends Equity $2,07 $6sa 53717 2,g15 $3,134 $1,422 $1,26 $1,72 $1,566 1,65 1,102 $1,753 $2,48 $2,43 7 91 $657 $1,29$ $1,243 Z3 Mct +ale: Revenue $3,40 $41,7qg $5,651 $45,9 $49,6; $62,04? $61,j31 551,423 $31,734 $41,44$ $50,221 $$1,405 79,07? $3,53; $45,079 $34,57 $49,567 $35,97? 2#Other income Revenue 70257566; $6 $182 $127 $112 :36 44137112125 $134 $665 $6481 25 Interest incom Revenue 30 $25 :2g zg7g 176 :34 $12 $14 $11557 $105 5277 $26 :63 50 Cost af gasd: scold Expense $31,460 23,1ag :38,120 29,824 $32,06 $41,435 45,273 $35,569 $21,071 $27,89 35,575 41,17 $55,075 4,535 $32,59g $23,675 $26,67? $25,578 27 General and administrative ex Expense $12,590 $3,735 $1,64 $11,462 $12.32 $12,6249 $12,742 11,175 7,577 $3,60 $10,275 $12,825 $17,507 $26,1:54 59,351 $7,13 59,382 5,036 28 Interest expens Expense $27; $300 3 22 $261 $278 $1,162 1,458 $85 $192 $265 $1,073 $88E $1,088 $64] $76 $487 $645 $618 29 Income tax expenpg Expense $2,315 $1,695 $2,796 $2,135 $2,35 $2,659 $2,092 $2,109 $1,452 $1,B45 $1,936 $2,431 $3,216 $3,223 $1,54? $1,451 $1,582 $1,517 30 2 31 32 33 Sheeti +)Explanation / Answer
The present issue looks like Revenue recognition. As per US GAAP SAB topic 13 revenue from sale of good or products should not be recognised until it is earned and realized or realizable. Revenue is generally earned and realized or realizable when all the following conditions has been satisfied.
a) There is persuasive evidence of an arrangement.
b) Delivery has occured.
c) The sales price is fixed or determinable.
d) Collectability is reasonably assured.
In addition there is a guidance on product transactions that include right of return.
So let us go through all the conditions one by one since every condition has to be met for revenue recognition from product transactions.
1st condition - Persuasive evidence- Purchase order can be considered as persuasive evidence.
2nd condition- Delivery has occured- Since the customer has not taken possession of goods. Nor the company has sent the goods to customer or customer's representives like agents nor to carrier with insurance where it is clearly evident the legal title and the risk & rewards has been transferred. The goods are at source segregated seperately and are available for customers to pick up. Anyhow mere possession of goods does not mean sale did not happened. One more issue can also be ascertained whether these goods are kept at suppliers place at customer's cost, however the question ia silent on this.Since it is clearly mentioned that goods sold under the PO but not possessed by customers yet are segregated from other products in warehouse which means the goods has been ascertained from unascertained lot in warehouse irrevocably. It is merely because of customers own reasons these are not collected by them yet.
If all the terms and conditions of PO are inline with this view and assuming remaining two conditions are met since there is a PO in which it is generally stated the sale price and it is also clear that Controller has identified these sales as 12% So the sale price has been fixed and determined. Also it seems that the company has good relationship and past history about collection of sales made with these customers since the goods are kept at customer places and the information relating to customers inventory space, levels, production schedule are also known to Company and knowing these the company has already recogised the revenue and reported which indicates the collectability is also reasonably assured.
After examining the terms and conditions of PO especially with any conditions pertaining to right of return than the controller's action maybe supported.
However maybe the quantity portion of revenue derived from these customers sales who have not picked up their stocks is small and not crossing the materiality levels effecting Financial statements but the revenue is generally earned and recognised or recognisable only when all the 4 conditions are satisfied.If any of these conditions are not satisfied by going through real facts then revenue recognition should not be done.