Question

On February 1, 2014, Quass Ltd. began selling electric scooters that it purchased exclusively from lonone Motors Inc. Ionone Motors offers vendor rebates based on the volume of annual sales to its customers, and calculates and pays the rebates at its fiscal year end, December 31. Quass has a September fiscal year end and uses a perpetual inventory system. The rebate offer that Quass received is for a $75 rebate on each scooter that is purchased in excess of 150 units in the calendar year ending December 31. An additional rebate of $30 is given for all units purchased in excess of 175 units in the same year. By September 30, 2014, Quass had purchased 190 units from lonone Motors and had sold all but 35. Although it only made its first purchase on February 1, 2014, Quass expects to purchase a total of 250 electric scooters from lonone Motors by December 31, 2014. Before arriving at the estimate of 250 electric scooters, Quass's management looked carefully at trends in purchases by its competitors and the strong market for sales of electric scooters in the coming months; sales are especially strong among environmentally conscious customers in suburban areas. Management is very confident the 250 electric scooters will be purchased by December 31, 2014.
Instructions
Assuming that Quass follows the reporting requirements under ASPE, answer the following questions.
(a) Based on the conceptual framework, discuss the reasoning that Quass should use in how it treats the rebate that it expects to receive from Ionone Motors.
(b) Would your opinion change if the rebate that is expected from lonone Motors had been discretionary?
(c) Discuss some of the factors that management should consider in arriving at a reasonable estimate of its amount of purchases to December 31, 2014.
(d) Calculate the amount of any accrued rebate to be recorded by Quass at September 30, 2014, assuming that the rebate is not discretionary and that management has a high degree of confidence in its estimate of the amount of purchases that will occur by December 31, 2014.
(e) Record the accruals that are necessary at Quass's fiscal year end of September 30, 2014.
(f) How would your response change if Quass followed the reporting requirements of IFRS?


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  • CreatedSeptember 18, 2015
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