Question

John Stag Co. manufactures farm equipment. It sells this equipment to a network of independent distributors, who in turn sell the equipment to final consumers. Stag provides financing and insurance services both to its distributors and to final consumers. Discuss when the company should recognise revenue along with any unique issues it may face in the recognition of expenses.

Answer 1

John Stag Co. should recognize revenue from manufactured farm equipments when it has sold them to a network of independent distributors. This will be the right treatment according to accrual concept of the accounting which states that epenses and revenue should be recognied when liab or right respectively to pay/receive them have been gained, even when amount have actually been not paid or received.

revenue fron financing activities shall be recognied when the right to receive interest on these financing activities is received by John Stag Co.

The issues that John Stag Co. may face hile reognizing epenses are

• when such arrangement is made to deduc balance from financing of distributor fron balance to that of customers and vice versa.
• When the sale is made on credit basis and later it turns bad fron customers side and balance is to be deducted from financing account.
• problem may be in choosing which expenses are to be recognized.