Question

Each response should be about one paragraph long, describing the justification for your decision.

On October 1st, a customer orders a Roomba 980 robotic vacuum from iRobot. The product has a 14 day trial period, which begins on the date of delivery. If the customer does not want the product at the end of the trial period, he must return the product in its original packaging, in good condition, within 21 days of the delivery date, to receive a full refund. The Roomba 980 is delivered on October 5th. Are the revenue recognition criteria met or not met? Why or why not?

Answer 1

ASC 605-15-25-1, Revenue Recognition—Products [formerly contained in FAS 48], specifies the following criteria for revenue recognition by the seller when the buyer has the right, explicitly or implicitly, to return the product:
1	The seller’s price to the buyer is substantially fixed or determinable at the date of sale.
2	The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product. If the buyer does not pay at time of sale and the buyer’s obligation to pay is contractually or implicitly excused until the buyer resells the product, then this condition is not met.
3	The buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product
4	The buyer acquiring the product for resale has economic substance apart from that provided by the seller. This condition relates primarily to buyers that exist on paper, that is, buyers that have little or no physical facilities or employees. It prevents entities from recognizing sales revenue on transactions with parties that the sellers have established primarily for the purpose of recognizing such sales revenue.
5	The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.
6	The amount of future returns can be reasonably estimated
	Yes, IBOT Should recognised revenue as per ASC 605 Revenue Recognition as all of the above Condition is Satisfied
	The Price of the product (Roomba 980) is substiantlly fixed ans the buyer has obligation to pay the price of the product.
	and this obligation will not be changed in case of physical damage of product . The buyer has a free trial period
	of 14 days but the product have sell primarily for the purpose of recognizing sale . In case of return of product ,Buyer
	should reversed the amount recognized.