Question

Two days before the financial year end of 31 December 2019, a major customer requested WT Limited to defer delivering 100,000 units of Product A until 2 January 2020 because the customer’s warehouse had already been closed for the New Year holidays. The customer requested WT Limited to issue the invoice for the goods at the current year end though the goods were delivered on 2 January 2020 and agreed to settle the amount within 30 days after the invoice date under the usual credit terms granted to the customer. Since this is a major customer with a good track record, WT Limited entertained the request and issued the invoice to the customer on 31 December 2019. The goods were delivered to the customer on 2 January 2020.

Required:

Determine whether the above transaction of WT Limited should be accounted for in the year 2019 in term of revenue recognition.

Answer 1

Ans. As per revenue recognition principle revenue is recognised when delivery of product or service is completed or amount for the product or service is received, whichever is earlier. So, revenue recognition principle does not give any importance to issue of invoice for revenue recognition. In case of WT limited, invoice was issued on 31st dec 2019, goods were delivered to the customer on 2 January 2020, amount was paid within 30 days after the invoice date under the usual credit terms granted to the customer. So, based on above discussion of revenue recognition principle WT limited will recognise revenue on 2nd January 2020 because goods were delivered on that date. So, above transaction of WT Limited should not be accounted for in the year 2019 in term of revenue recognition.