ACC562 Assignment 5 - Week 10 Assignment#5 Week 10 Assignment#5 Case 10B Ligand Pharmaceuticals Strayer University Week 10 Assignment#5 1 Week 10

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Week 10: Assignment #5 1 Week 10: Assignment #5 ─ Case 10B “Ligand Pharmaceuticals” Strayer University Week 10: Assignment #5 ─
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Week 10: Assignment #5 2 Case 10B “Ligand Pharmaceuticals” Discuss the Accounting Standards and Concepts that Dictate the Proper Accounting of Sales Returns In some industries, customers have the right to return unsold merchandise to the sellers for a credit or refund. The right to return merchandise usually is an industry practice but may also occur as a result of a contractual agreement. The rate of return of some companies may be high, while in other industries, such as perishable foods, the rate of return may in insignificant. The return period can last for a few days, as in the perishable food industry, or it can extend for several years, which is frequent for some types of publishers. However, for companies that experience a high ratio or returned merchandise to sales, the recognition of the original sale as revenue is questionable. An accounting issue also arises when the recognition of revenue occurs in one period while substantial returns in later periods. ASC 605-15-25, Revenue Recognition—Products , formerly contained in FAS No.48, Revenue Recognition When Right of Return Exists, reduced the diversity in the accounting for revenue recognition when right of return exists. On July 1, 2009, the Financial Accounting Standards Board (FASB) launched the Accounting Standards Codification (ASC). The ASC replaced all previously existing financial accounting standards to become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP), except for rules and interpretive releases of the SEC which will remain as sources of authoritative GAAP (FASB, 2009). ASC 605-15-25 describes how to account for a sale when the buyer has a right to return the product, and provides criteria for recognizing revenue on a sale in which a product may be returned, either by ultimate consumer or by a party who resells the product to others. Revenue from sales transactions with a right of return shall be recognized at time of sale
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Week 10: Assignment #5 3 only if certain conditions are met. Even then, the seller should accrue any estimated returns and expected costs. According to Paragraph 25-1 of ASC 605-15, if an enterprise sells its product but gives the buyer the right to return the product, revenue from the sales transaction is recognized at 1. The seller’s price to the buyer is substantially fixed or determinable at the date of sale. 2. The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product. That is, if the buyer does not pay at time of sale and the buyer’s obligation to pay is contractually or implicitly excused until the buyer resells the product, then this condition is not met. 3.
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This note was uploaded on 11/15/2011 for the course ACCOUNTING ACC562 taught by Professor Williamguy during the Fall '10 term at Strayer.

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ACC562 Assignment 5 - Week 10 Assignment#5 Week 10 Assignment#5 Case 10B Ligand Pharmaceuticals Strayer University Week 10 Assignment#5 1 Week 10

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