FRA - #32 Gross Revenue Reporting Vs Net Revenue Reporting

Hi Guys, Below is a question I want your opinion on. Note I have changed the question around to avoid copyright violations. ABC Ltd sells products over the internet for people on a consignment basis. ABC receives the items from the owner, lists them for sale on the internet, and receives 25% commission for any items sold. ABC collects the full amount from the buyer and pays the net amount after commission to the owner. Unsold items are returned to the owner after 90 days. During 2011, ABC had the following data: - Total commissions retained by ABC during 2011 for these items was $500,000 - Total sales price of items sold during 2011 on consignment was $2,000,000 How much revenue should Apex report on its 2006 profit and loss statement? A) $500,000 B) $2000,000 c) $1500,000 ---------- Ok well I originally chose $2000,000 for this reason. I was under the impression that the question could be referring to the Gross Revenue Reporting a company could undertake meaning that their P&L statement would look like this Revenue: $2,000,000 Expenses: $1,500,000 Profit: $500,000 Compare this with this example of Gross Revenue Reporting: (Consider a travel agent who arranges a first class ticket for a customer flying to Bangkok. The ticket price is $10,000 and the travel agent receives a $1000 commission. Using gross reporting, the travel agent would report $10,000 of revenue, $9000 of expense, and $1000 of profit. Using net reporting, the travel agent would simply report $1000 of revenue and no expense.) ------- Ok now to my query. Should of the ABC Ltd question above listed whether the company uses Gross or Net Reporting? Because at the moment this question is asking us to make assumptions on this matter. Hope I haven’t confused you all Thanks in advance

ABC has to report Net. It can report Gross only if the losses are its own. Say it is unable to sell the leftover and it goes waste. ABC should suffer if it uses Gross reporting. But ABC gives it back and does not have to take the risk. So it reports Net only. In a way, it is just an agent.

I understand now. Thanks anish.

4 criteria need to be met to report gross revenue: - They are primary obligor - They bear inventory risk - They choose their own suppliers - They establish their own prices In this case, they do not bear inventory risk (can return consigned inventory), don’t choose their own suppliers (the customers choose them), and I suspect they also don’t establish their own prices.

he receives commissions and return back the left over so, net revenue