Pisquid Ltd. (Pisquid) is a manufacturer of kitchen furniture. In November 2015, Pisquid received an order for 15,000 sets of specially designed furniture from a large retail chain. The contract guarantees the price the retailer will pay and the quantity it will buy from Pisquid. The furniture is to be delivered monthly, in equal quantities each month, beginning in March 2016 and continuing through August 2017. The retail chain is to pay Pisquid within 45 days of receiving each shipment. Because Pisquidhad excess capacity in its plant when the contract was signed it decided to manufacture the full order as soon as it could. Pisquid began producing the furniture in January 2016 and completed making the 15,000 sets in November 2016.

a. Identify the different possible critical events that could be used to recognize revenue.
b. Which critical event would you recommend for recognizing revenue to satisfy the purposes of each of the following objectives? Explain. (In answering, don't consider the constraints and the facts.)
i. Tax minimization
ii. Evaluation of management by outside shareholders
iii. Income smoothing
iv. Managing earnings to increase income
v. Cash flow prediction
c. Which of the revenue recognition methods that you identified in (a) satisfy the IFRS revenue recognition criteria? Explain.

  • CreatedFebruary 26, 2015
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