Question

Hello, I need an answer to the following question ASAP. Thank you you own a company that sells and installs home security systems, and you routinely purchase complete camera systems for installation in customer homes. One camera system manufacturer has offered you $800 cash back after your tenth camera system purchase. So far this year, your company has purchased nine camera systems and expects to place its tenth order next month. Should this probable rebate be recognized, and how? Respond using existing (not pending) content. Also cite codification and relevant paragraph.

Answer 1

Should this probable Rebate e recognized?

Ans: It is rebate discount retrospective and volume based rebate. Hence it should recogized once Receipt is probable. Once recognized the rebate should be recorded as reduction to the Cost of the related Inventory.

So On purchase of 10th Camera System the probable rebate should recognized as under :

1. Cost of Inventory Account (Camera System) Dr 1000

To Vendor Account 1000

(Being Purchase of 10th Camera System as Inventory)

2. Vendor Account Dr. 800

To Cost of Inventory Account (Camera System). 800

(Being recognised Rebate as reduction of cost of inventory against vendor Account as agreed with customer as after purchase of 10th Camera system the receipt of Cash Rebate is Probable)

Assumption:

1. Cost of One Camera is $1000.