Deferred Revenue Asset

yasaswi gomes (My grammar is 💯 good I)   (7285 Points)

25 February 2021  

Some one had a unique marketing strategy of handing over brand new equipment to customers without selling it, requesting them to use it as a trial and purchase that equipment if they like it in their trial. I said impossible!! 

Now it is possible like below and going to write my first recommendation to standard setters. I might get lucky and Revenue  Recognition might include my suggestion. 

 

Deferred Revenue Asset a/c Dr. 

To Inventory Cr.

(When equipment is handed to the customer for trial)

Bank a/c Dr.

Revenue a/c Cr.

(When the customer agreed to purchase the asset and made payment)

COS a/c Dr.

Deferred Revenue Asset a/c Cr. 

(To reflect the inventory closing balance)

 

or

 

Inventory a/c Dr.

Loss on trial Dr. 

Deferred Revenue Asset a/c Cr.

(When the customer returns the product due to dissatisfaction)

 

The Loss on trial will be calculated as per days depreciation

Inventory is revalued at lower of: (Trial equipment)

Cost less wear and tear (Depreciation)

NRV less wear and tear (Depreciation)

Depreciation is not tax deductible. The returned trial equipment could be resold at an arms length transaction at a new mark-up or lowered selling price. :)