Page 16 Question 17:5 marks Fancy Store sells \'We Love Dubai\" T shirts. Custom

Question

Page 16 Question 17:5 marks Fancy Store sells 'We Love Dubai" T shirts. Customers can return the T -shirts within 28 days of purchase. unus d saleable as new. Historically, 5% of the retailer's sales are returned by customers, this rate of return is low as sales are mainly to tourists who leave the country shortly after purchase. This rate is expected to continue. All returns come undamaged and be resold at full price. The margins on the T-shirt is 50%. Required: How does a retailer recognize revenue on the sale of goods when a right of return is provided in exchange for cash? 09

Explanation / Answer

The revenue here will be recognized when the products are exchanged for cash or claim to cash, ie, at the time of sale. The return is not likely to happen in the future and hence revenue as well a profit will be recognized at the time of sale.

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