Question: Each of the following situations is independent of the others

Each of the following situations is independent of the others:
a. Carnegie Corporation commissions, produces, and sells books through faith- based nonproit organizations. The books are sold on the basis that a maximum of 50% of the quantity purchased can be returned within six months. Payment is due within 30 days of the end of the return period. Carnegie has a good historical record of the proportion of books returned, on average.
b. Maxwell Limited is a gatherer and distributor of coffee beans. The beans are purchased from harvesters in Brazil and Columbia, roasted, and packaged in large burlap bags. Max-well then resells the bagged beans to food processors, coffee houses, and grocery chains in North America. Cofee beans have an open trading market and are traded on several major commodity exchanges in the United States. Raw beans can be purchased and/ or sold in the open market at any time.
c. Heckinger Inc. manufactures customized private- label bottled water for a large retail chain. The product is sold under the chain’s “Director’s Choice” in- house label. Just prior to shipping the customized product, the chain voluntarily entered creditor protection. Under creditor protection, creditors cannot force payment of their claims until a judge approves a comprehensive plan for settling the claims of all creditors, a process that can take several years. Since the product had already been customized, Heckinger did deliver the product, believing that it would be better off in the long run to receive some payment instead of scrapping the product.
d. Nevo Corporation develops large- scale custom sotware. Nevo’s main area of expertise is in designing complex systems for managing health care. It takes the company an average of three years to complete a project, from concept and specifications through program-ming, debugging, and testing. The client makes interim payments as Nevo accomplishes “milestones” that are specified in the contract. Nevo ofers “turn- key” service, in which Nevo is responsible for installation in the client’s facilities (including additional hardware, if necessary), on- site testing, and training for the client’s staff. Nevo has never failed to deliver a contract on time and on budget, provided that the client does not change the system speciications while the system is being designed.

For each situation, explain when revenue is recognized and how costs and payments should be accounted for both before and ater revenue is recognized under IFRS.

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  • CreatedFebruary 17, 2015
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