Festi Corp. is evaluating if revenue may be recognized for two of their contracts. The customer...
Festi Corp. is evaluating if revenue may be recognized for two of their contracts. The customer in Contract A has indicated that they are ready to accept the transfer of the products associated with the contract, but delivery has not yet occurred. The customer in Contract B has received legal title to the products, but has asked Festi to store the products for them until they open the new stores for which the product has been ordered. Festi has clearly labeled and set aside the products in the warehouse for the customer in Contract B, but delivery has not yet occurred. Should revenue be recognized for:
| Contract A? | Contract B? |
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A |
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B |
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C |
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D |
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Homework Answers
Answer (B)
Revenue should be recognised in the following cases
Contract - A “No”
Contract- B “ Yes”
As per International financial reporting standards - Revenue from goods should be recognised only when risk and rewards associated with goods are transferred from seller to buyer,
In the given case Risk and reward of the goods was not transferred in contract A whereas it was transferred in contract B
In Contract B customer has received legal title of the products and seller has clearly labelled and set aside the products in the warehouse for the customer in Contract B.
mere non delivery of goods does not affect the revenue recognition.
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