Question: Employees at your company disagree about the accounting for sales returns. The sales manager believes that granting more generous return provisions and allowing customers to order items on a bill and hold basis can give the company a competitive edge and increase sales revenue. The controller cautions that, depending on the terms granted, loose return or bill and hold provisions might lead to non-IFRS revenue recognition. The company CFO would like you to research the issue to provide an authoritative answer.
Instructions: Access the IFRS authoritative literature at the IASB website. (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.)
(a) What is the authoritative literature addressing revenue recognition when right of return exists?
(b) What is meant by "right of return"? "Bill and hold"?
(c) When there is a right of return, what conditions must the company meet to recognize the revenue at the time of sale?
(d) What factors may impair the ability to make a reasonable estimate of future returns?
(e) When goods are sold on a bill and hold basis, what conditions must be met to recognize revenue upon receipt of the order?