Bolton Ltd. recently purchased an internet site selling books to the academic market. 75% of the revenues of this division come from direct sales of books. Fulfilment costs such as shipping, handling and warehouse expenses, which are a significant cost of doing business, are charged as marketing expenses as they are incurred. In the past two years a further 15% of revenues from this division have come from selling airline tickets online on behalf of several major airlines. When Bolton Ltd. sells a $400 airline ticket the company records all $400 as revenue and deducts the cost of the ticket in cost of goods sold given they temporarily hold the plane seat in inventory and therefore take on some inventory risk. Bolton Ltd. also swap advertising space on other internet companies' websites. They record the value of their benefit from this bartering transaction as if it was a sale and record an expense for the value of the advertising space they provide to the other internet company. This contributes 10% of sales revenue every year.

Critically comment on the accounting for the transactions detailed above. Please indicate:

(i) whether you agree or disagree with the accounting, and

(ii) why you agree (or disagree)

Answer rating: 100% (QA)

i We agree with the accounting of sales of airline tickets accounting but disagrees with ac... View the full answer