Soorya Manufacturing Makes Educational Toys That Are Sold to Retailers

Soorya Manufacturing makes educational toys that are sold to retailers on the following terms: Each type of toy has a fixed wholesale price, is shipped f.o.b. shipping point, and payment is due 45 days after the shipment. The retailer may return a maximum of 45% of an order at the retailer's expense up to 6 months after delivery. Sales are made only to retailers that have a good credit rating. In Soorya's 11 years of existence, the company has experienced a return rate of approximately 15%, a bad debt expense of 5% of sales and an average collection period of 90 days. Soorya provides a bonus to its senior managers based on annual revenues, net of returns.
Required:
a. What revenue recognition criteria should Soorya use to determine when revenue should be recorded?
b. Discuss the pros and cons for recording revenue when the goods are manufactured by Soorya. Remember to support your reasoning with case facts.
c. Discuss the pros and cons for recording revenue when the goods are shipped to the retailer. Remember to support your reasoning with case facts.
d. Discuss the pros and cons for recording revenue 45 after shipment when payment is due. Remember to support your reasoning with case facts.
e. Recommend the recognition point that Soorya should use in its financial statements.

Correct Answer:

Verified

a)Paragraph 14 of IAS 18 provides the fo...

View Answer

Unlock this answer now
Get Access to more Verified Answers free of charge

View Full Answer For Free