Question

Answer the following questions regarding the recognition of revenue. Use a complete sentence to explain the amount of revenue.

eBay sells used products collected from different suppliers. Assume a customer purchases a used bicycle through eBay for $300. eBay agrees to pay the supplier $200 for the bicycle. The bicycle will be shipped to the customer by the original bicycle owner.

1. Assume eBay takes control of the bicycle before the sale and pays $200 to the supplier. How much revenue would eBay recognize at the time of the sale to the customer? Why?

2. Assume eBay bay never takes control of the used bicycle before the sale. Instead the bicycle is shipped directly to the customer by the original bicycle owner, and then eBay pays $200 to the supplier. How much revenue would eBay recognize at the time of the sale? Why?

3. Assume eBay promised to pay $200 to the supplier regardless of whether the bicycle is sold, but the bicycle will continue to be shipped directly from the supplier to the customer. How much revenue would eBay recognize at the time of the sale? Why?

Answer 1

1. Assume some conditions for the 1st case, as Ebay sells the goods that are used to customers for $300 and it purchases from the customers for only$200 and the Ebay is taking control of the supply by paying $200 to him/her initially. Thus this concludes that this satisfies the sale between Ebay and the supplier as it bought the good from the customer for $200 So ebay has to book purchase cost of $200 at the time of payment to supplier and has to recognize the money generated from the sale at $300 in statement as Profit or Loss

2. In the second case, where ebay never gotten authority over the products. It implies no deal occurred among provider and ebay. Consequently ebay can't book buy cost of $200...the exchange is by all accounts progressively like an important and specialist exchange, where ebay goes about as an operator to provider and moves the merchandise on his behalf...Hence at a bargain to clients at $300..the ebay needs to perceive the distinction of $100 as commission got in the time of offer in proclamation of benefit or loss

3. In the third case, where ebay is committed to pay $200 to provider regardless of offer occurring, it can likewise be treated as deal. Ebay is paying the sum yet not getting the physical ownership of the merchandise. Notwithstanding, since it paid the sum, the provider is obliged to convey the merchandise according to the guidance of ebay at whatever point required. Further provider can't utilize the bike for some other reason. Consequently control is regarded to be exchanged. As referenced in the event that An, also ebay ought to perceive income of $300 at a bargain and buy cost of $200..the products will be in supply of ebay until the point that they are sold.