Perfect Desks Inc. (PDI) is an office furniture supplier, and it maintains NO inventory in its store. When a customer wants to purchase office furniture, the customer selects the items from a variety of manufacturer catalogues. PDI has the discretion to provide discounts of up to 3% of the selling price listed in the manufacturer’s catalogue. After the customer selects a product and pays a deposit to PDI equal to 40% of the selling price, PDI places the order with the manufacturer on behalf of the customer. The manufacturer ships the order directly to the customer. On acceptance of a delivery by the customer, the customer has five days to pay the remaining balance owing to PDI. PDI must remit 85% of the total listed selling price to the manufacturer within 10 days after the customer accepts the delivery, regardless of whether the customer has paid PDI in full.

The customer deals with the manufacturer directly for any warranty issues. PDI reports under IFRS.

Required:

1. Discuss three factors that indicate PDI is the principal.
2. Discuss three factors that indicate PDI is the agent.
3. Using case facts, conclude whether PDI is the principal or the agent.

Based on the conclusion in part (c), recommend the appropriate accounting treatment that PDI should use for the sale of its office furniture.

Answer rating: 100% (QA)

a 1 The first factor that indicates that PDI is the principal is that PDI is not sure that the client will pay the remaining balance owing to PDI So t... View the full answer