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Dec 09-Q2 Sandown, 16m revenue with going services for three years, annual cost 1.2m,40% profit
1) why 4m should be recognized as liability in SoFP. We can see 4m deducted from revenue in I/S to get right profit for the year. Why not it’s enough?
2) why 1.2mx2 cost not deducting from Cost of sales in I/S?Hi Vipin or Najiya, could you pls look at this? And also
Dec 2010-Q2 Keystone, point i revenue including a 30-day return of goods, keystone is uncertain about these goods will be returned or not.
Comparing with Sandown’s question, in Keystone’s situation, no CL and NCL, is it bcoz of 30-day, not more than 12 months, right?Sandown
1)if 4m is deducted from sales revenue, ie, debit sales revenue; then there should be a credit also. It is according to IAS 18 Revenue that this is shown as deferred income, a liability.
2)cost is not yet incurred, then why should we subtract from cost of sales?Keystone
these two qns are different.
The case in Sandown is after-sales service. Here, it is that the buyer of the goods can return the goods within 30 days if he is unable to sell them.as the examiner says, goods sold on sale-or-return basis should not be recognised as sales, as there is uncertainty regarding whether they will b returned or not. they can be recognised only when it is certain that the goods won’t be returned.
So, we need to cancel the entry for sales.ie.
Dr. sales
Cr. Receivables
What we are doing here is, to show in the statements that such a sale never happened.
we need to adjust the inventory also, we need to add back the cost of these goods.
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