Does anyone have any experience accounting for transactions in which Company A sells parts to Company B and then repurchases some of the parts after value has been added to sell to Company C? At the time of the initial sale to Company B, there is no way to determine how many of the parts Company A will repurchase from Company B. I have looked at EITF 04-13, but that does not appear to be applicable. I don't think it is appropriate to recognize the entire amount of revenue in the second transaction when Company A sells to Company C because we would be double counting revenue. We also don't want to defer revenue recognition on the initial sale because we have no way of know how many parts we will buy back until we get orders. Any guidance would be greatly appreciated!
Revenue and COGS for products sold to and subsequently repurchased from supplier
Jul 03, 2007
3 Replies
wrote
Unless there is a contractual obligation to repurchase some of the products you sold to B, then treat each transaction separately. In that case you have:
1) a sale to B2) a purchase from B
3) a sale to C.In each case the appropriate entries to inventory, COGS, sales and such should be recorded.
Thanks for the help Paul.
What exactly do you mean by "a contractual obligation to repurchase some of the products you sold to B"? We have a contract that states no minimum quantities, but if orders are placed by C, we have to buy from B. So if company c never places an order with us, we are under no contractual obligation to ever purchase anything from B. Therefore, based on what you said in your posting, I believe these transactions are distinct events are are accounted for independently. Is that correct?
Thanks!
wrote
You can only book something when the amount can be reasonably determined.
Yup. There's no interconnected dots.......so one can happen and the other not.
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