FIN621 GDB Solution Fall 2012

Apex consignment is a small online store and sells items over Internet for individuals on consignment basis. Apex has only one major supplier from whom it receives the items. Thereafter, lists these items for sale on the Internet and receives 25% commission for any item sold. Apex collects the full payment from the buyer but pays only the net amount to the supplier after deduction of its commission. Unsold items are returned to the supplier after 90 days. During financial year 2011, total sale price of the items sold on consignment was Rs. 2,000,000. Total commission retained by the Apex for these items was Rs. 500,000.  The total cost of goods sold was Rs. 120,000 and total expenses were Rs. 80,000. Apex also thought that net income is basically the amount of cash in hand which it can utilize to meet the major expenses of the company.

 

Requirement:

a.     How much revenue should Apex report on its Income Statement of 2011? Also give the reason.

b.     Do you agree with the statement of Apex about net income? Justify your answer.

Solution:

Q1= IAS 18 Revenue Recognition

Rs. 500,000/- is revenue apex is reported in this statement because *Apex* commission is the revenue in 2011 income statement.

IAS 18 Revenue outlines the accounting requirements for when to recognise revenue from the sale of goods, rendering of services, and for interest, royalties and dividends. Revenue is measured at the fair value of the consideration received or receivable and recognised when prescribed conditions are met, which depend on the nature of the revenue.

Q2= no, i am not agree with this statement because we know that apex has earn profit in the form of commission and after paying every expense apex gain positive figure. Net income is the increase in owner’s equity resulting from profitable operations of a business. This is accompanied by increase in total assets, (but not necessarily cash).

 

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