Question

The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions?

a) The seller's price to the buyer is substantially fixed or determinable at the date of sale.
b) 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.
c) The buyer has the economic substance of the product.
d) The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.
e) The amount of future returns can be reasonably estimated.
f) The seller has experience with similar transactions that enables it to reliably estimate the amount of future returns.
g) The buyer has the right to return the product for a full refund if it is unsatisfied.
h) All of the above are conditions specified by the FASB.

Answer 1

The FASB has specified six conditions for recognizing revenue from a sales transaction with a right to return the product. Option (g) is not one of these conditions.

Step-by-step explanation:

The FASB (Financial Accounting Standards Board) has specified six conditions that must be met for a company to recognize revenue from a sales transaction where the buyer has the right to return the product:

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.
3. The buyer has the economic substance of the product.
4. The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.
5. The amount of future returns can be reasonably estimated.
6. The seller has experience with similar transactions that enables it to reliably estimate the amount of future returns.

Option (g) - 'The buyer has the right to return the product for a full refund if it is unsatisfied' is not one of the six conditions specified by the FASB. Therefore, (g) is the correct answer choice.