SilverStone Inc.supplies emission systems worth $100,000 to Horizon Enterprises.As per the terms of sale contract, SilverStone takes back all unused emission systems.Horizon estimates that 5% of the emission systems will be returned.Under IAS 18, only four out of the five conditions for recognizing revenue from the sale of goods are met as economic benefits of 95% of sale will flow to SilverStone.How much revenue should be recognized by SilverStone Inc.?

Question

Quizplus · Accepted Answer

Under IAS 18, revenue recognition for the sale of goods requires that all five conditions be met. However, in this case, only four of the conditions are met as economic benefits of only 95% of the sale will flow to SilverStone. Therefore, revenue recognition should be based on the percentage of the sale that is expected to be retained by the company. In this case, 95% of the sale is expected to be retained, so revenue recognition should only be for $75,000, with the remaining $25,000 treated as a deferred revenue liability.