(a) Revenue recognition is the process by which companies decide when and how much income should be included in the income statement. It is a topical area of great debate in the accounting profession. The IASB looks at revenue recognition from conceptual and substance points of view. There are occasions where a more traditional approach to revenue recognition does not entirely conform to the IASB guidance; indeed, neither do some International Accounting Standards.
Required:
Explain the implications that the lASB's Framework for the Preparation and Presentation of Financial Statements (Framework) and the application of substance over form have on the recognition of income. Give examples of how this may conflict with traditional practice and some accounting standards.
(b) Derringdo sells good supplied by Gungho. The goods are classed as A grade (i.e. perfect quality) or B grade, having slight faults. Derringdo sells the A grade goods acting as an agent for Gungho at a fixed price calculated to yield a gross profit margin of 50%. Derringdo receives a commission of 12.5% of the sales it achieves for these goods. The arrangement for B grade goods is that they are sold by Gungho to Derringdo and Derringdo sells them at a gross profit margin of 25%. The following information has been obtained from Derringdo's financial records:

Required:
Prepare the income statement extracts for Derringdo for the year to 31 March 2003 reflecting the above information.

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Inventory held on premises 1 April 2002 Goods from Gungho year to 31 March 2003 Inventory held on premises 31 March 2003 A grade B grade A grade B grade A grade B grade $000 2 400 1 000 18 000 8 800 2 000 1 250