The time frame in each of these scenarios is after the effective date of the new
ID: 2529313 • Letter: T
Question
The time frame in each of these scenarios is after the effective date of the new revenue recognition
rules in ASC Topic 606.
Required:
For each of the following independent situations, determine the point at which a contract
exists and is subject to application of the 5-step revenue recognition model by Amiel
Corporation.
1. A regular customer of Amiel’s always places an order on the last day of the month,
but did not do so in December. Amiel is certain it is because the customer’s
purchasing
manager was ill and that the order will be received when she returns. In
fact, the order is received by fax in early January, with an apology from the customer’s
purchasing
manager and a note requesting that Amiel “expedite shipment of this
December order.”
2. One of Amiel’s customers calls and gives Amiel a list of goods it intends to buy, but with
the caveat that the order is subject to the approval of the purchasing manager, who will
not be in for several days. In fact, the order is received by fax several days later when the
purchasing manager returns.
3. One of Amiel’s customers calls and gives Amiel an order. Amiel typically receives orders
by fax and asks the customer to confirm the order by fax, which it does several days later.
4. Amiel and one of its customers agree that Amiel will sell it certain goods, but that the
price will depend on the price of oil two weeks later. Amiel and the customer have agreed
on a formula that will determine the price of the goods based on the price of oil. Amiel
makes this arrangement because oil is a key component of the goods Amiel sells.
Explanation / Answer
Correct option is "A" -addresses when and how revenue should be recognized in contracts that provide both goods and services to customers.
The idea behind this principle is to when an entity should recognize revenue in relation to sale of goods or services for a consideration that an entity reasonably expects to recover.
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