Entity A sells medical devices to the healthcare sector. It operates in a number of European countries.
Question:
Entity A sells medical devices to the healthcare sector. It operates in a number of European countries. On 1 January 20X6, Entity A signed an agreement with Entity B. Entity B is located in the US and it manufactures a specific type of medical device. Under the agreement, Entity A has exclusive rights to distribute in Europe the medical device manufactured by Entity B. Entity A sells each device at a fixed price of €1,000 and earns a commission of 10 per cent of sales. During the year ended 31 December 20X6, Entity A sold 8,000 medical devices supplied by Entity B.
Required:
(a) Explain how this transaction should be accounted for in Entity A’s financial statements.
(b) Identify and explain the factors that should be considered in determining whether an entity is acting as a principal or an agent.
Step by Step Answer:
International Financial Reporting And Analysis
ISBN: 9781473766853
8th Edition
Authors: David Alexander, Ann Jorissen, Martin Hoogendoorn