Ajit commenced business on 1.1.2012 producing designer drawing room suites, selling them to approved retailers on one month credit, at £1,250 per suite. His activities during the first year are tabulated on the right. MV is the net amount realisable at each stage of completion of a suite.

Ajit informs you that:

(i) Customers have yet to pay for 40 units because they were delivered in December 2012.

(ii) Five units delivered on 31.12.2012 were not invoiced until the next day.

(iii) Because of a transport breakdown there was a delay in delivering ten units sold on 31 December.

(iv) Forty units completed by 31.12.2012 were sold within the next three days. Ajit claims to have earned £128,850 in the year and submits his calculations as shown.

Required:

(a) Would you agree with Ajit?

(b) In what circumstances could Ajit recognise revenue relating to incomplete or unsold goods?

Transcribed Image Text:

Stage reached by 31 December 2012 1 Acquisition of raw materials 2 Construction/assembly of carcass 3 Completion of upholstery 4 5 6 7 8 Lacquer coating, polishing, finishing Sale of the finished product Delivery of the finished product Invoicing of units delivered Receipt of the sale proceeds Units Unit cost 320 290 260 240 200 190 185 145 £225 £540 £680 £750 £750 Unit MV £225 £675 £920 £1,250 £1,250 £750 £1,250 £750 £1,250 £750 £1,250