Question

Suppose you are an accountant for a large retail company. At the end of the quarter, the General Manager (GM) tells you: “Our sales are slightly below forecast and we will not make our bonus this quarter. However, I noticed that we got a lot of cash from selling gift cards. I also noticed that this cash is not included in our quarterly sales revenue. Can you include it, so that our reported sales meet the forecast and we get paid our bonus?”

a. How would you explain to the GM why the cash received for gift cards should or should not be included in your reported sales revenue?

b. What would the ethical issues be with reporting the cash received for gift cards as sales revenue?

c. How would you react to the GM’s request? Specifically, would you report the cash received for gift cards as sales revenue or not?

Answer 1

A)

At the point when a retailer deals a blessing card to a client, the installment for a future buy is gotten up-front, yet give-and-take of stock is delayed at the buyer's consideration. Along these lines, rather than recognising real income on the offer of blessing cards, retailers record a approved income risk on the accounting report for the money trade until the blessing card is retrieved.

b)

At the point when a blessing card is used, signifying the time when the merchandise or administrations are exchanged, the card sponsor should decrease the connecting responsibility for the card, all the while noticing income by the sum for which the card was used.

c)

The ED reports the issue of unexercised client rights evolving when a purchaser does not apply a blessing card. The ED clearly lodges the consumption of derecognition to cut the stale obligations and to identify income by articulating that a card sponsor "ought to" derecognize stale liabilities, insofar as the matter is rationally assured of the breakage sum, or when generally fitting under the direction.