Wiseman Ltd is offering the following conditions to customers who purchase goods with a minimum total of $5 000 in the one transaction:
-Initial deposit of 25% of purchase price.
-Immediate delivery of goods purchased.
-Interest rate of 10% p.a. charged on the outstanding balance.
-Repayment of the balance (including the interest) over 36 equal monthly instalments.
-Wiseman Ltd retains legal title to the goods until the final monthly payment has been made.
Wiseman Ltd would recognise revenue as follows:
A) recognise the whole amount of revenue at purchase date.
B) recognise all revenue as it is received
C) recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods at purchase date.
D) recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods once the final payment has been received.

Question

Wiseman Ltd is offering the following conditions to customers who purchase goods with a minimum total of $5 000 in the one transaction: 
-Initial deposit of 25% of purchase price.
-Immediate delivery of goods purchased.
-Interest rate of 10% p.a. charged on the outstanding balance.
-Repayment of the balance (including the interest) over 36 equal monthly instalments.
-Wiseman Ltd retains legal title to the goods until the final monthly payment has been made.
Wiseman Ltd would recognise revenue as follows:
A) recognise the whole amount of revenue at purchase date.
B) recognise all revenue as it is received
C) recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods at purchase date.
D) recognise interest as it is received (monthly) and recognise the revenue on the sale of the goods once the final payment has been received.

Quizplus · Accepted Answer

The revenue recognition principle states that revenue should be recognised when it is earned and when the risks and rewards of ownership have transferred to the buyer. In this case, Wiseman Ltd retains legal title to the goods until the final monthly payment has been made, indicating that the risks and rewards have not yet been transferred to the buyer. Therefore, the revenue should only be recognised once the final payment has been received. Additionally, interest income should be recognised as it is received (monthly) since it is a separate revenue stream. Choice D best reflects these principles.

Wiseman Ltd Is Offering the Following Conditions to Customers Who