Question:
Meyer Furniture sells office furniture mainly to corporate clients. Customers who return merchandise
within 90 days for any reason receive a full refund. Discuss the issues Meyer must consider in
determining its revenue recognition policy.
Answer:
The seller must meet certain criteria before revenue can be recognized in situations when the right of
return exists. The most critical of these criteria is that the seller must be able to make reliable estimates of
future returns. If Meyer’s management can make reliable estimates of the furniture that will be returned,
revenue can be recognized when the product is delivered, assuming the company has no additional
obligations to the buyer. If reliable estimates cannot be made because of significant uncertainty, revenue
and related cost recognition is delayed until the uncertainty is resolved.
Meyer Furniture sells office furniture mainly to corporate clients. Customers who return merchandise
within 90 days for any reason receive a full refund. Discuss the issues Meyer must consider in
determining its revenue recognition policy.
Answer:
The seller must meet certain criteria before revenue can be recognized in situations when the right of
return exists. The most critical of these criteria is that the seller must be able to make reliable estimates of
future returns. If Meyer’s management can make reliable estimates of the furniture that will be returned,
revenue can be recognized when the product is delivered, assuming the company has no additional
obligations to the buyer. If reliable estimates cannot be made because of significant uncertainty, revenue
and related cost recognition is delayed until the uncertainty is resolved.
