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hello Sir,
plz explain the following extract from partway Q
and also the answer
Sorry in advance for such a huge para here for u to read?The terms under which Partway sells its holidays are that a 10% deposit is required on booking and the balance of
the holiday must be paid six weeks before the travel date. In previous years Partway has recognised revenue (and
profit) from the sale of its holidays at the date the holiday is actually taken. From the beginning of November 20X5,
Partway has made it a condition of booking that all customers must have holiday cancellation insurance and as a
result it is unlikely that the outstanding balance of any holidays will be unpaid due to cancellation. In preparing its
financial statements to 31 October 20X6, the directors are proposing to change to recognising revenue (and
related estimated costs) at the date when a booking is made. The directors also feel that this change will help to
negate the adverse effect of comparison with last year’s results (year ended 31 October 20X5) which were better
than the current year’s.
Required
(ii) Comment on whether Partway’s proposal to change the timing of its recognition of its revenue is
acceptable and whether this would be a change of accounting policy.It’s certainly a change in accounting policy (worrying that one of the reasons for the proposed change is to distort the comparison with last year’s figures!)
Just thinking about the question, it’s the holiday that creates the revenue rather than the booking of the holiday or its subsequent cancellation.
I’m leaning towards suggesting that the proposed change is not acceptable.
Now, I must ask why you need my input on this! There must be a suggested solution facing you. If you have access to the question, you must in addition have access to the solution so why do you feel it necessary to test me?
no Sir not in anway i want to test u actualyy i did not understand this question and therefore neither the answer so i asked u so that u expalin in easier way
Sir i am confusing first two sentences
I do understand that first line is regaarding the terms and second is regarding the revenue reconition but what i am getting confused with is that if the date they actually take the holiday is the one when customers pay the balance.i dont understand the last line
🙁
Copy the sentences that confuse you into your next post – no need to copy the entire opening post. Then at least I shall be able clearly to see what the problem is
1.The terms under which Partway sells its holidays are that a 10% deposit is required on booking and the balance of
the holiday must be paid six weeks before the travel date.2.In previous years Partway has recognised revenue (and
profit) from the sale of its holidays at the date the holiday is actually taken.3.The directors also feel that this change will help to
negate the adverse effect of comparison with last year’s results (year ended 31 October 20X5) which were better
than the current year’s.“1.The terms under which Partway sells its holidays are that a 10% deposit is required on booking and the balance of
the holiday must be paid six weeks before the travel date.”When I walk into the travel agent’s shop and say that I want to book a holiday in Southern Greece, the travel agent will arrange the holiday and ask that I should immediately pay 10% of the total holiday cost
“2.In previous years Partway has recognised revenue (and
profit) from the sale of its holidays at the date the holiday is actually taken.”And quite right too! The earning of the revenue, and thus the profit, is confirmed upon the taking of the holiday. If, after booking, a family decides not to take the holiday, then no holiday event takes place and no profits should therefore be attributable.
“3.The directors also feel that this change will help to
negate the adverse effect of comparison with last year’s results (year ended 31 October 20X5) which were better
than the current year’s.”I cannot identify anything within this paragraph that you could claim not to understand! The directors wish to change the accounting policy to manipulate the figures in order to show a less-damaging comparison with last year’s results.
OK?
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