CHAPTER 5: ACCOUNTING FOR REVENUE AND OTHER RECEIPTS
Scenario 1: Selling Furniture with a Return Policy (Department of Education)
The Department of Education (DepEd) purchases a large quantity of desks and chairs for public
schools. The Procurement Services offers a one-month return policy for any damaged or defective
furniture. DepEd pays for the furniture upon delivery.
I.
Revenue Recognition Criteria:
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II.
Risks & Rewards: Transferred upon delivery despite the return policy. DepEd assumes
ownership and responsibility for the furniture, even if returned within a month for certain
reasons (damage, defect).
Control: DepEd gains control upon receiving the furniture.
Measurement: Sale price is fixed and measurable.
Economic Benefits: Probable economic benefits are ensured by full payment upon delivery. The
return policy only applies to specific circumstances (damaged/defective items).
Costs: Costs associated with the furniture purchase are measurable.
Timing of Revenue Recognition: Revenue can be recognized upon delivery of the furniture.
III.
Justification:
IPSAS 9 paragraph 30(d) clarifies that the right to return for a specified reason does not necessarily
delay revenue recognition if the probability of return is low (e.g., defects limited to a small percentage).
In this case, the return policy is likely for exceptional circumstances (damaged/defective furniture) and
not expected to significantly impact the overall sale.
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