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You establish a three year agreement with a customer where they expect to buy $500,000 a year in product.
In exchange you take their existing inventory from their current supplier and replace it with your inventory valued at $300,000 Revenue, COGS of $150,000. They will not pay you for this $300,000 in inventory it is an exchange. The inventory you take back you will dispose of at scrap value of $30,000.
How do you recognize revenue over the life of this agreement?
Initial $300K
Next $200K in same year
Year 2: $500K
Year 3: $500K
In exchange you take their existing inventory from their current supplier and replace it with your inventory valued at $300,000 Revenue, COGS of $150,000. They will not pay you for this $300,000 in inventory it is an exchange. The inventory you take back you will dispose of at scrap value of $30,000.
How do you recognize revenue over the life of this agreement?
Initial $300K
Next $200K in same year
Year 2: $500K
Year 3: $500K