Let's suppose we have a company that sells tablet computers with 90 days warranty, we are at the end of Q2. Returns have been historically estimated by management to 10% per year. However, the company that follows IFRS has accounted for returns on a cash basis so far , as a reduction of revenue in the period of return. Additionally, this company sells a tech. service per tablet at $10/ year, yet the first year is free.
Thus,I would need to revise the revenue to restate the statement of comprehensive income for the two Quarters that ended, March 31st, June 30 for:
A- Product returns
B- free tech. service
I have found a solution for a similar problem but didn't quite understand it. It adjusted the product returns by 5% (1/2 of the historical rate) assuming products were sold evenly in Q1 & Q2- Can you please let me know why we made this assumption and how will the assumption differ if we are at the end of Q3 or Q4 instead?
Also, the free tech. service was assumed to be 1.5 months over in Q1 assuming even sales across the two quarters. Again, by doing that we would be 1.5 outstanding at the end of Q4, didn't quite understand the rationale.
Thank you
Thus,I would need to revise the revenue to restate the statement of comprehensive income for the two Quarters that ended, March 31st, June 30 for:
A- Product returns
B- free tech. service
I have found a solution for a similar problem but didn't quite understand it. It adjusted the product returns by 5% (1/2 of the historical rate) assuming products were sold evenly in Q1 & Q2- Can you please let me know why we made this assumption and how will the assumption differ if we are at the end of Q3 or Q4 instead?
Also, the free tech. service was assumed to be 1.5 months over in Q1 assuming even sales across the two quarters. Again, by doing that we would be 1.5 outstanding at the end of Q4, didn't quite understand the rationale.
Thank you