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Accounting - Crazy Computers and Three Little Pigs Essay examples

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Crazy Computers
Crazy Computers Retailers is wrong in recognizing the insurance premium commission it receives after selling these policies to consumers as revenue. Provisions of ASC 605 – 45 on revenue recognition provides that an entity is a principal transaction and should be reported as gross on condition that the party recording is the primary obligator (Miller, 2013). This means that it is liable to the customer in case of a claim covered by the insurance policy accorded to the consumer. However, Crazy Computers Retailers does not offer primary obligation and thus should not recognize the initial commission collected from premium policies as gross revenue. The Third Party Insurer is the one responsible of settling the claim and thus should be responsible of recognizing the income as revenue.
The same scenario applies to the case of reinsurance. The ASC 605 – 45 is categorically clear that it does not cover transactions that include premiums for insurance and reinsurance (Miller, 2013). This means that the claim by Crazy Computers Retailers to recognize the commission revenue generated from sale of extended warranty contracts is flawed. Since this provision does not cover insurance related concepts, it would be thus erroneous to use this provision.
The reason given for not covering such revenue is that it is covered under a different codification. In this case, insurance is covered under Financial Services – Insurance (944-605) (FASB. 2011). Under this provision, Crazy Computers Retailers has the right to recognize any amount generated from the sale of an insurance policy to the extent that the insured is obligated to pay the insurer as prescribed in Financial Services – Insurance (944-685) Sec 25-2 (a) (FASB. 2011). Simil...


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...ccounts for $ 14/ cwt. Such an amount is able to cover the losses incurred by selling the hogs at $ 29 and thus the Three Little Pigs, Inc. should not recognize impairment in its inventory in interim period as provided for under ASC 270-10-45-6.



Works Cited

FASB Accounting Standards Codification. (2011). 944 Financial Services – Insurance. Retrieved May 27, 2014 from https://law.resource.org/pub/us/code/bean/fasb.html/fasb.944.2011.html
Financial Accounting Foundation. (2009). FASB Accounting Standards Codification: Notice to Constituents (v 1.05). Retrieved May 27, 2014 from http://asc.fasb.org/.../5724610.pd...
Miller, K. (2013). ASC 605-45 Sec: Determining whether a revenue transaction falls within the scope of ASC 605-45. The GAAP Post. Retrieved May 27, 2014 from https://thegaappost.com/sec/605-revenue/605-45-principal-agent-considerations/605-45-scope.html



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