Question

Name two examples of transactions to which the Principal Agent Considerations of ASC 606 might apply.

Answer 1

When a company authorizes another company to act on its behalf and takes full responsibility for the acts of that other company (except in certain specified circumstances). the relationship between the two companies is known as principal-agent relationship For example, assume that Company A authorizes Company B to sell goods on its behalf for a commission and Company A has full control over the goods before the goods are sold to consumer. Com the directions given by Company A and cannot make any changes with respect to the price or any other selling conditions. Moreover, if the goods are found to be defective, Company A would be responsible for the goods and not Company B. In such case, Company A is the principal and Company B is the agent. pany B is only authorized to sell the goods to consumers according to Following are the examples of transactions to which the Principal Agent Considerations of ASC 606 would apply: 1. A book publisher's contract with a book seller, to sell the books at a retail selling price decided by the book publisher would be a principal-agent relationship between the publisher and the seller. The Principal Agent Considerations of ASC 606 would apply to the transactions between these two parties. 2. A movie production company's contract with a distributor company for the sale of DVDs at a price decided by the production company with the condition that the DVDs that the distributor would not be able to sell shall return to the production would b distributor company. The Principal Agent Considerations of ASC 606 would apply to the transactions between these two parties e a principal-agent relationship between the production company and the