Superior Salmon Farm, a private company reporting under ASPE, raises salmon that it sells to supermarket chains and restaurants. The average selling price for a mature salmon is $6. Many people believe that the selling price will increase in the future, because the demand for salmon is increasing as more people become aware of the health benefits of the omega-3 fatty acids in this fish. It normally takes three years for the fish to grow to a saleable size. During that period, the fish must be fed and closely monitored to ensure they are healthy and free of disease. Their habitat must also be maintained. These costs average $4.50 per fish over the three-year growing period. The owner of Superior Salmon Farm believes the company should recognize revenue at a rate of $2 a year ($6 / 3 years) for each fish that it harvests.
Instructions
Do you agree with the proposed revenue recognition policy for Superior Salmon Farm? Explain why or why not. Use the revenue recognition criteria to explain when you believe the revenue should be recognized for this salmon farming business.
Taking It Further
Explain how the costs of feeding, monitoring, and maintaining healthy fish and a proper habitat should be recorded.