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Question bodyline from attempt 12/03 in bpp kits is recognising a provision for profit when the goods are returned in a goods return policy and are then sold at the same price but where is the transfer of economic benefit as it can sell the goods agian at full price so I don’t understand this treatment and why the profit element is provision why not the sale price… because this question also contains some of these goods returned and then sold at half price so that is consistent with my treatment because there is an transfer of economic benefit which is half the selling price
When we bring them back into inventory, they are valued at original cost for inventory purposes. So, on their return with full refund, there IS an outflow of economic benefit to the value of the lost profit on the returned goods.
When they are resold, then the profit will again be recognised, but this time it will be recognised in the period that benefits from the profit on sale
No! “because there is an transfer of economic benefit which is half the selling price” In fact, the transfer of benefit equates to ((selling price / 2) – original cost)
(or value as calculated in closing inventory)
Is that ok?
It states here in the question:
Sales in the last 28 days of trading year to 30 september 20×3 were 1750000. Past trends reliably indicate that 10% of all goods are returned under the 29 day return facility. These are not faulty goods. Of these 70% are later resold at the normal selling price and the remaining 30% are sold as sale items at half the normal retail price.It is also stated above in the question that 20% of the total sales are from Header(Supplier) who sells stuff to Bodyline at a discounted price and at a markup on cost of 40% and so does not accept any warranty claims so we have to bear the cost of the Manufacturing faults of items bought by header so no refund is given by header but the other 80% sell at a mark up of 25% and we can recover the cost of goods that are returned as faulty from them
The issue is with the 28 day return policy provision…
Here’s what they’ve done at the back:
1.75m x 10% x 30% x 50% = 26250
1.75m x 20% x 10% x 70% x 40/140 = 7000
1.75m x 80% x 10% x 70% x 25/125 = 19600Which company are we and is the 20% sales to Header included within the $1,750,000?
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