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One of the practice Kaaplan practice questions has a scenario where you make credit sales to an unrelated company but prior to the date of sale the customer announces that it will be restructuring its debts and it is deemed improbable that you will be able to recover the outstanding amounts.
As a result, the revenue isn’t recognised.
If the announcement had come after the goods had been dispatched, would you recognise the sale (given you have fulfilled your obligation under COPAR) and then provide for doubtful debt? Is the issue that prevents you from recognising the revenue only that you knew economic benefit was improbable at the point of sale?
Presumably if the announcement of debt restructuring by the third party comes after the year end but before the publishing date its a non-adjusting event and you just disclose?
Many thanks,
Sam
Yes – I think the revenue is not recognised only because the issues about the customer are known at the time of the sale.
Announcement after the year end may be adjusting – it depends whether there is evidence that, at the balance sheet date, customer was insolvent – bad debts after year end are usually adjusting.
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