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Choose suitable revenue recognition policies In each of the following independent cases, indicate when you think the company in question should recognise revenue. Support your decision with reference to the generally accepted criteria for revenue recognition.
1 Outback Gold mines and refines gold. To sell the gold, the company waits until it feels the market price is favourable. The company can, if it wishes, sell its entire inventory of gold at any time at the prevailing market price.
2 Crazy Freddie sells cheap furniture on an instalment plan. His customers take delivery of the furniture after making a down payment. Over the past year, Crazy Freddie has had to repossess over 50 per cent of the furniture sold, because of customers defaulting on payments.
3 Tom and Mark’s Construction undertakes long-term construction contracts. The company only accepts contracts that will pay a fixed fee. Costs can be estimated with reasonable accuracy, and there has never been a problem collecting from customers.
4 Cecily Cedric is a toy manufacturer producing toys that are shipped to various retail customers upon receipt of their purchase orders. Sales are billed after shipment. The company estimates that approximately 2 per cent of credit sales prove to be uncollectable.