(10 points) Pincus Ltd. typically records revenue when both parties to the trans
ID: 2560195 • Letter: #
Question
(10 points) Pincus Ltd. typically records revenue when both parties to the transaction (Pincus and its customer) have signed a master agreement. In the first quarter of 2010, Pincus entered into a master agreement to provide widgets with a sale price of $10,000. On September 30, Pincus is in possession of a signed purchase order from the same customer to buy pinwheels with a sale price of $10,000, which also will be covered by the master agreement signed for the widgets. On September 30, the widgets were delivered. Also on September 30, 2010, Pincus is negotiating an amendment to the master agreement, which Pincus believes is a mere formality, and no further material items are under negotiation. On October 5, 2010, Pincus received from the customer a final, signed copy of the amendment, dated September 30, with no terms materiallly changed. Pincus signed the agreement as soon as it received it from the customer.
How much revenue should Pincus recognized from these events in the third quarter of 2010 (which ends on September 30) under US GAAP?
How much revenue should Pincus recognize from these events in the third quarter of 2010 under IFRS?
Explanation / Answer
For the given situation under both US GAAP and IFRS, delivery is the date for recognising revenue.
Signing a master agreement is not the event to recognise revenue, such policy is not in accordance with either US GAAP of IFRS.
Delivery of goods occured in Sep.30 and revenue of 10000 will be recognised in the third quarter. Signing an amendment to master agreement will not affect the first transaction related revenue recognition.
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