Question

Maryann Wood recently purchased on layaway a big-screen television from Circuit City, which is a public...

Maryann Wood recently purchased on layaway a big-screen television from Circuit City, which is a public company. Maryann paid $200 as a cash deposit on the television. The television cost Circuit City $2,000 and has a total retail price of $3,500. Circuit City has set the television aside pending the payment by Maryann Wood of the balance owed. Circuit City does not require its customers to enter into an installment note or other fixed-payment commitment or agreement when the initial deposit is received. Merchandise on layaway generally is not released to the customer until the customer pays the full purchase price. If the customer fails to pay the remaining purchase price, the customer forfeits his or her cash deposit. In the event the merchandise is lost, damaged, or destroyed, Circuit City either must refund the cash deposit to the customer or provide replacement merchandise. REQUIRED: When should Circuit City recognize the revenue from the sale to Maryann? Justify your answer.

Homework Answers

Answer #1

According to the IFRS 15 criteria, for revenue to be recognized, the following conditions must be satisfied:

  1. Risks and rewards of ownership have been transferred from the seller to the buyer.
  2. The seller no longer controls the goods sold.
  3. The collection of payment from goods or services is reasonably assured.
  4. The amount of revenue can be reasonably measured.
  5. Costs of revenue can be reasonably measured.

In given case risk and rewards of ownership have been transferred to maryann. And amout of revenue $3500 is also determined. And collection of payment from maryann is also reasonably measured at the time of sale.

Conclusion

All conditions of IFRS is satisfied at time of sale. So revenue should be recognized at the time of deposit paid.

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