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What are the rules with regard to revenue recognition

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Reference no: EM132585100

Caramel Apple, Inc. is a manufacturer of various types of candy. Caramel Apple sells mostly to retail establishments, such as grocery stores, convenience stores, and other bulk purchases. Caramel Apple does not sell to the individual consumer. Caramel Apple has a favorable return policy for its customers. Your audit team is debating the new rules, effective 2018, regarding revenue recognition for products with the right of return. Caramel Apple's controller is not aware the revenue recognition rules changed in 2018 due to the IRFS convergence. The audit partner on the engagements want to make sure Caramel Apple is compliant with the convergence revenue recognition rules, especially with the favorable return policy.

Question 1. What are the rules with regard to revenue recognition, specifically with a right of return policy?

Question 2. How might inventory be misstated when right of return policies are in place? Consider why a company may allow returns and if returns are common in certain industries.

Question 3. Are there situations which would make it difficult to properly estimate returns with right of returns?

Reference no: EM132585100

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