FAR 1

Question 1

When is revenue from sale with right of return recognized?

Answer 1

Only recognized at time of sale if ALL of the following are met:

1. sale price is fixed
2. buyer assumes all risk of loss
3. buy has paid some form of consideration
4. product sold is complete
5. amount of future returns can be reasonably estimated

if not met, then recognize when return period has expired

Question 2

Revenue recognition - bill and hold sales

Answer 2

buyer is not ready to take delivery due to lack of space, slow production schedule etc.

Revenue may be recognized if:

1. risk of ownership have passed to the buyer
2. buyer has committed to purchase the goods, a set price and fixed delivery date has been established
3. goods are separated from seller’s good

Question 3

Application of change in accounting estimate

Answer 3

Prospective application. do not restate

• change of lives of fixed assets
• write downs of obsolete inventory
• changes to LIFO or depreciation method

Question 4

Application of changes in accounting principle

Answer 4

Retrospective application

Question 5

Application of changes in accounting entity

Answer 5

Retrospective

Question 6

Application of error correction

Answer 6

prior period adjustments

• mistakes in application of GAAP (GAAP to non GAAP)
• mathematical mistakes