As a financial consultant, your advice is sought on whether and to what extent revenue may be recognised in each
As a financial consultant, your advice is sought on whether and to what extent revenue may be recognised in each of the following independent circumstances:
(i) Your client A publishes medical journals. At the beginning of his first year’s trading he received £15,000 in advance being a three-year subscription for the journal. The business is now preparing its accounts at the end of the first year.
(ii) Your client B accepted an order for 5,000 tons of sugar and received payment in full of £90,000. He has placed an order for sugar to satisfy this customer but the sugar was not in stock at the year-end.
(iii) Your client C received £150,000 for granting a franchise to another company, allowing them to deal exclusively in the products of C within a defined area for five years.
(iv) Your client D, a mail order company, dispatches goods to its customers on approval, on terms that the goods may be returned, without obligation, within two weeks of delivery. On the last day of the year, goods with a sales value of £214,600 remained with customers within the approval period.
(v) Your client E sold a machine to a customer, on three months’ credit, stating on the invoice, in small print, that the title to the goods remains with E until the goods are paid for. The goods are still to be paid for by the year-end.
(vi) Your client F, a company owning tea estates in Sri Lanka, reports that as at the year-end it holds a stock of 3,250 tons of pinkpechoe highland tea, which realised £297,400 in the following week’s London Tea Auctions. The expenses of realisation amounted to £6,000.
Advise your clients, giving reasons to support your advice.
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