Consider each of the following scenarios for Bunsen Suppliers Company: a. The co

Question

Consider each of the following scenarios for Bunsen Suppliers Company: a. The common practice of Bunsen Suppliers is to obtain a written sales agreement. When an Anson Store called on the phone with an urgent need, however, Bunsen orally agreed to deliver goods in exchange for $6,000, then immediately delivered these goods to Anson without a written agreement. b. Bunsen Suppliers has a written agreement to deliver goods to Comfort Inc. for $110 per unit. The price will drop to $95 per unit for all units if Comfort purchases more than 1,000 units per month. c. Bunsen Suppliers has a written agreement with Darwin Company to deliver 800 units of product each Saturday afternoon. Darwin can alter the quantity or cancel a delivery any time before noon Saturday. Required: Determine if a contract exists for each of these scenarios and comment on revenue recognition issues.

Explanation / Answer

a In the present case as per the terms of the contract sales took place with the delivery of goods . As the delivery has already been made, Bunsen Suppliers can recognise the revenue of $ 6000. b In the present case as per the terms of the contract, the sales are to take place at $ 110 per unit for delivery of 1000 units which can be recorded in the books once the delivery is made by the seller.Where the goods are ordered for above 1000 units, the revenue can be recognised at the rate of $ 95 per unit. Thus with delivery of goods ordered by buyer, the revenue can be recognied by seller as per the terms agreed. c No revenue can be recognised by Bunsen Suppliers until Saturday afternoon as till then buyer retains the right to alter or cancel the units ordered. Once the said time passes, seller can immediately recognise the sales in his books.

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