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Hello Sir,
from PYQ Sep/Dec 2018
Q16(e) Revenue substantial procedures(i)
“– Select a sample of customer orders and agree these to the despatch notes and sales invoices through to inclusion in the sales ledger and revenue general ledger accounts to ensure completeness of revenue.”why do not chase through the sales day book but instead straight go to the sales ledger and revenue general ledger account after the sales invoice?
(ii)
“Select a sample of despatch notes both pre and post year end and follow these through to sales invoices in the correct accounting period to ensure that cut-off has been correctly applied”why it’s not inverted, which the pre and post-year-end sales invoice agree to the despatch note pre year end?
(iii)
“-For sales made under the price promise, compare the level of claims made to date with the refund liability recognised and assess whether it is reasonable”is it for each claim made by the customer, the sales revenue should be reduced by the same amount?
why need to compare with refund liability?
Not sure about this answer.Thank you.
(i) It says “through to inclusion” – the “through” would be via the SDB. For clarity, this could have been explicitly stated.
(ii) It’s not necessary to perform every test from “both directions”. The cut-off test is on sales and the starting point of a sale is the despatch of goods – so matching from GDNs to sales invoices is the primary test.
(iii) Here’s a real world example https://www.pcworldbusiness.co.uk/customer-services/price-promise.jtp? The company will match a difference in selling price if the customer could have obtained the same product from 4 alternative suppliers. If Curry’s isn’t the cheapest price, the amount of refund will depend on which of the 4 suppliers had the cheapest offer at the time the purchase was made. So yes, at a point in time it would be same amount for each relevant product. And yes, it would be deducted from revenue.
In the case scenario – the y/e end is 30 September. Customers have 30 days to claim under the promise so Darjeeling will have a liability to pay out on claims in October in respect of September sales. This liability could be estimated by looking at the payouts in previous months and take an average (for example). The D/E for this accounting estimate is:
Dr Revenue
Cr Refund liability*
* This would be offset against trade receivables in the financial statements (since the refund would be given by way of credit note as extended credit period offered to customers appears to be more than 30 days price promise period).@kim2311 said:
(i) It says “through to inclusion” – the “through” would be via the SDB. For clarity, this could have been explicitly stated.(ii) It’s not necessary to perform every test from “both directions”. The cut-off test is on sales and the starting point of a sale is the despatch of goods – so matching from GDNs to sales invoices is the primary test.
(iii) Here’s a real world example https://www.pcworldbusiness.co.uk/customer-services/price-promise.jtp? The company will match a difference in selling price if the customer could have obtained the same product from 4 alternative suppliers. If Curry’s isn’t the cheapest price, the amount of refund will depend on which of the 4 suppliers had the cheapest offer at the time the purchase was made. So yes, at a point in time it would be same amount for each relevant product. And yes, it would be deducted from revenue.
In the case scenario – the y/e end is 30 September. Customers have 30 days to claim under the promise so Darjeeling will have a liability to pay out on claims in October in respect of September sales. This liability could be estimated by looking at the payouts in previous months and take an average (for example). The D/E for this accounting estimate is:
Dr Revenue
Cr Refund liability*
* This would be offset against trade receivables in the financial statements (since the refund would be given by way of credit note as extended credit period offered to customers appears to be more than 30 days price promise period).for (ii)
I just want to be clear whether my concept is correct or not.
Which the sales and receivable is recorded in the account when the sales invoice is received(recorded in sales day book) but for sales cut off /trigger and receivable completeness it’s at the point of goods despatched, therefore the sales cut off /receivable completeness need to start from the goods despatch note,is it correct?Thank you so much in advance.
Please don’t block copy quotes that can be read on the post – it’s unnecessary.
Revenue/Receivables will be recorded in the ledger accounts when posted from the SDB.
But, as you say, the trigger for a sales transaction is the despatch of goods (or the rendering of a service) – so this is the starting point for testing the completeness of sales.
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