Question

f. Refer to Apple’s revenue recognition footnote. In particular, when does the company recognize revenue for the following types of sales?

i. iTunes songs sold online.

ii. Mac-branded accessories such as headphones, power adaptors, and backpacks sold in the Apple stores. What if the accessories are sold online?

iii. iPods sold to a third-party reseller in India.

Answer 1

1. Certain sales made through the iTunes Store, Apple is not the primary owner to theusers of the software and the third-party developers determine the selling price for theirsoftware. So Apple accounts for these third-party sales on a net basis by only recognizingrevenue commission that it retains from each sale and includes the commission in the netsales in their Consolidated Statement of Operations. Following the sale, the sales price paidby the iTunes customer is forwarded by Apple to the third-party and is not reflected onApples Consolidated Statement of Operations.
2. Apple sells their accessories online as well as in their Apple retail stores. The same risksapply whether you sell these asseccory products online or at the store. Apple establishes theirown pricing and retains related inventory risks that come along with the products. Apple is theprimary contact in the sales transactions with its customers and assumes all the credit risk for theamounts billed to its customers.Apple generally recognizes revenue for the sale of productsobtained from their customers based on the total amount billed to that customer.
3. Apples products are considered delivered to the third-party reseller in India when it hasbeen shipped and the title and risk of loss have been transferred. For most of Apple's productsales, these criteria are met at the time the product is shipped and then received from the third-party reseller in India. Apple defers revenue until the reseller in India receives the productsbecause Apple is legally bound to a portion of the risk of loss on these sales during transit. Oncethe Indian reseller has received the iPods, than Apple can finally recognize revenue.