Reference no: EM132984834

DNG Ltd. is an internet site selling books and flight tickets to the academic market. 75% of the revenues come from direct sales of books. Fulfilment costs such as shipping, handling, and warehouse expenses, which are a significant cost of doing business, are charged as marketing expenses as they are incurred. As a seasonal promotion, DNG Ltd. provides customers with a book voucher for every $500 spending on books. The voucher can be redeemed and offer customers a 10% discount for their next purchase on DNG website. The company recognizes sales of books at an amount that a customer has paid in a transaction. In the past two years, 15% of the company's revenues have come from selling airline tickets online on behalf of several major airlines. When DNG Ltd. sells a $400 airline ticket the company records all $400 as revenue and deducts the cost of the ticket in cost of goods sold given they temporarily hold the plane seat in inventory and therefore take on some inventory risk. DNG Ltd. also swaps advertising space on other internet companies' websites. They record the value of their benefit from this bartering transaction as if it was a sale and record an expense for the value of the advertising space they provide to the other internet company. This contributes 10% of sales revenue every year.

Problem 1: Critically comment on the accounting for the transactions detailed above. Further, provide recommendations to improve its current accounting for the transactions. Hint: Suppose the airline tickets sold on DNG website are non-refundable.