Beruflich Dokumente
Kultur Dokumente
Entity A has an existing manufacturing customer, entity B, who has recently announced that it expects to have to restructure its debt with current creditors, including entity A, in order to ensure sufficient operating liquidity to avoid bankruptcy. Subsequent to the announcement, Entity A ships an order of replacement parts to entity B based on a purchase order received from entity B prior to announcement. You are required to: 1. Answer when A should recognize revenue? 2. Treatment of Dr. Balance in B Account
Ans: Entity A should not recognize revenue for the latest shipment to entity B as its not probable that the economic benefit related to the products shipped will flow the entity.
Entity A may record revenue when entity B pays for the shipment of replacement parts, which is when it becomes probable that the economic benefit will flow to entity A and when the amount of revenue can be measured reliably. In contract, any allowance recorded against any existing receivable balance as a result of entitys B announcement of its need to restructure debts should be recorded as expenses not as a reversal of revenue.