Target Case
Requirement 1
Target reports Sales revenue of $73,785 million for the 2015 fiscal year, which
ended January 30, 2016.
Requirement 2
Recording revenue at the point of sale indicates that Target records revenue at the
Requirement 3
Target estimates returns as a percentage of sales based on historical return patterns,
be adjusted to reflect actual returns over time.
Requirement 4
It appears likely that Target is accounting for those arrangements as an agent,
principal, it would include gross revenue for those arrangements in sales.
Requirement 5
When a gift card is sold, Target recognizes a deferred revenue liability rather than
“broken”, meaning that Target does not believe the gift card will ever be redeemed.
Target Case (concluded)
Requirement 6
Target indicates that “Vendor income reduces either our inventory costs or SG&A
expenses based on the provisions of the arrangement. Under our compliance
the same as the vendor’s revenue, these refunds serve to reduce vendors’ revenue.
Air France–KLM Case
Requirement 1
a. AF’s balance sheet indicates current deferred revenue on ticket sales of
€2,515 million as of December 31, 2015.
c. This seems consistent with U.S. GAAP. A liability for deferred revenue is
provided.
Requirement 2
a. From note 4.7: “In accordance with the IFRIC 13, these ‘miles’ are
been met.
The deferred amount due in relation to the acquisition of miles by members
is estimated:
method.”
b. Per the balance sheet, AF has a liability for “Frequent flyer programs” of
€760 million.
c. AF’s approach is consistent with ASU No. 2014-09, in that the transaction
flights that customers use to earn the miles.
Judgment Case 5–14
Requirement 1
The three methods that could be used to recognize revenue and costs for this
2018 gross profit under the three methods:
(1) point of delivery:
(2) installment sales method:
$80,000
50% x $30,000 (cash collected) = $15,000
(3) cost recovery method:
SUPPLEMENT CASES
Case 5-14 (concluded)
Requirement 2
Customers sometimes are allowed to pay for purchases in installments over
situations, point of delivery revenue recognition should be used.
If, however, the installment sale creates a situation where there is significant
exceptional uncertainty. The cost recovery method is the more conservative of the
two.
IFRS Case 5–15
Vodafone’s revenue recognition policies for products and services are similar
to revenue recognition policies in the U.S. Sales of products are recorded when
deliverables based on relative fair values. The terminology is somewhat different,
but the end results, as compared to U.S. policies, should be similar in most cases.
IFRS Case 5–16
Requirement 1
Per the revenue recognition section of ThyssenKrupp’s annual report for the
Policies:
Revenue recognition
…Construction contract revenue and expense are accounted for using the
to the most recent estimates of total cost.
…Where the income of a construction contract cannot be estimated reliably,
which they are incurred.
Requirement 2
Similar accounting would be used under U.S. GAAP.
Trueblood Accounting Case 5–17
A solution and extensive discussion materials can be obtained from the
Trueblood Accounting Case 5–18
A solution and extensive discussion materials can be obtained from the
Real World Case 5–19
Requirement 1
Policies:
Revenue recognition
…Construction contract revenue and expense are accounted for using the
to the most recent estimates of total cost.
…Where the income of a construction contract cannot be estimated reliably,
which they are incurred.
Requirement 2
Similar accounting would be used under U.S. GAAP.
Trueblood Accounting Case 5–20
A solution and extensive discussion materials can be obtained from the
Trueblood Accounting Case 5–21
A solution and extensive discussion materials can be obtained from the
Real World Case 5–22
Requirement 3
The following is from the 2015 10-K of Jack in the Box, Inc. The responses
policy.
Franchise development and license fees are recorded as deferred revenue
the restaurant has opened for business.
Franchise royalties are recorded in revenues on an accrual basis. Among
are contingent upon sales levels, are recognized in the period in which the
contingency is met.
Requirement 4
Answers to this question will, of course, vary because students will research
Arby’s.