On April 15, 201x, the ABC Company (ABC) enters into a contract with a customer to provide
Question:
On April 15, 201x, the ABC Company (ABC) enters into a contract with a customer to provide Product Z for $100,000. Delivery occurs on April 30, 201x. Payment terms, which are standard for ABC, are as follows: $50,000 due June 15, 201x, and $50,000 due December 15, 201x. ABC’s customer is in the start-up phase and has been in operation for six months. As of June 30, 201x, the customer has made no payments. ABC obtained the financial statements for its customer, which revealed losses for all periods and a cash balance of $10,000. The customer informed ABC that it was in the process of finalizing an agreement for some additional venture financing, which will be used to make future payments. ABC demonstrates that it has persuasive evidence of an arrangement, the delivery has occurred and the selling price is fixed.
Should revenue be recognized on this transaction when delivery occurs on April 30, 201x, under US GAAP? Why or why not?
Should revenue be recognized on this transaction when delivery occurs on April 30, 201x, under IFRS? Why or why not?
Under both US GAAP and IFRS, what consideration should be given to establishing an allowance for doubtful accounts? Provide detailed accounting support for all your answers.
Intermediate Accounting Reporting and Analysis
ISBN: 978-1285453828
2nd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach