Fair Jewellers is a retail jewellery store. Fair offers a lay-away program allowing customers to make a down payment on an item in the store. The store holds the item for the customer until it's paid in full.
Customers are required to pay in full within 180 days of the down payment. Customers don't have to sign a formal agreement to pay for or purchase the selected item. If the customer fails to pay in full, the customer loses the down payment. If the merchandise is lost, damaged, or destroyed, Fair must either refund the down payment or provide replacement merchandise. In the past, about 8 percent of customers didn't complete the purchase and lost their payments.
When should Fair Jewellers recognize revenue from the lay-away sales? Also address how Fair should account for the deposits that are lost. Explain your answers.