If a company sells its product but gives the buyer the right to return the product,AASB 118 requires revenue from the sales transaction to be recognised at the time of sale.

Question

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AASB 118 states that revenue from sales transactions should only be recognized if it is probable that the economic benefits associated with the transaction will flow to the seller and the amount of revenue can be reliably measured. If a company sells a product but gives the buyer the right to return the product, then it is not certain that the economic benefits will flow to the seller and the amount of revenue cannot be reliably measured at the time of the sale. Therefore, revenue recognition should be deferred until it is certain that the buyer will not exercise their right to return the product.

If a Company Sells Its Product but Gives the Buyer