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Great to see this new CIMA section! I have been asking questions under ACCA- but its great to see open tuition have a section for CIMA.
Question: Which of the following should revenue from the sale of goods be recognised:
1. Case 1- Sale or Return
– goods are sold by a manufacturer to a retailer who has the right to return goods within 28 days if unable to see them
2. Case 2- Sale with delivery included
– goods have been shipped but have not yet arrived at the customers premises. the seller is responsible for delivery.For case1- I understand that we can not recognise revenue until after the 28 days have passed. the risk here has not yet been transferred to the buyer because the retailer can return the goods.
for case 2- the answer says that revenue should not be recognised until the customer has accepted the goods. until then the risk of ownership still lie with the seller. but is the explanation not a contradiction to case 1 reasoning? so in case 2 if the customer receives the good they can straight away recognise revenue? since risk has been transferred to the buyer.. what if like in case 1 there is a return policy? should I assume there is no return policy. hence why for case 2 revenue can be recognised when customer accepts goods?
I answered this in the ACCA Ask ACCA Tutor F7 forum!
This is the answer I gave there:
“… you’re correct with case 1 in that risks and rewards have not been passed over until the 28 day return period has expired
But case 2 is a different situation. Whenever goods are sold in business there is a general acceptance that the goods delivered will conform with all the order specifications (minor deviations accepted). So, whenever goods are delivered, there is always the possibility that they may be returned
This is not the same as a sale of goods arrangement under sale or return terms
Where goods are delivered to the buyer the seller has to give the buyer the opportunity to inspect the goods and, normally, the buyer will accept.
But if there is a lack of conformity (quantity, description, or even the timing of the delivery) the buyer is able to reject those goods.
Thus hopefully you can see that the goods are not safely delivered until the buyer has accepted the delivery
OK?”
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