Equipment Dealer enters into a contract to deliver construction equipment to Landscaping Inc. Equipment Dealer operates in a country where it is common to retain title to construction equipment and other heavy machinery as protection against non-payment by a buyer.
Equipment Dealer's normal practice is to retain title to the equipment until the buyer pays for it in full. Retaining title enables Equipment Dealer to more easily recover the equipment if the buyer defaults on payment.
Equipment Dealer concludes that there is one performance obligation in the contract that is satisfied at a point in time when control transfers. Landscaping Inc has the ability to use the equipment and move it between various work locations once it is delivered. Normal payment and credit terms apply.
When should Equipment Dealer recognise revenue for the sale of the equipment?
A) when entering the contract
B) upon delivery
C) when full payment is made
D) none of the above

Question

Quizplus · Accepted Answer

The revenue should be recognized upon delivery, as this is when control transfers to Landscaping Inc and they are able to use and move the equipment as needed. Retaining title to the equipment does not impact the timing of revenue recognition. Full payment may take some time, but this does not impact the transfer of control and revenue recognition.

Equipment Dealer Enters into a Contract to Deliver Construction Equipment