Essay about Ccpc

992 Words Apr 27th, 2014 4 Pages
Background
Consumer Cleaning Products (CCPC) is a public manufacturing company with a calendar year the same as the fiscal year. CCPC's supply chain consists of :

CCPC introduced a new product September 1, 2009 called Fresh & Bright. Part of CCPC's marketing campaing was to "drop" appromixamatly 500,000 coupons in the Sunday newspaper where Fresh & Bright was sold. The coupon worked in the following way:

The 500,000 coupons could be used through October 1, 2010. CCPC has data one six month coupons for other products but does not have any data on one year coupons for detergent. CCPC estimates that two percent of the detergent coupon will be redeemed. As of Septemeber 30, 2009 CCPC has sold $2,000,000 of Fresh & Bright.
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Per ASC 605-50-25-3:
“For a sales incentive offered voluntarily by a vendor and without charge to customers that can be used or that becomes exercisable by a customer as a result of a single exchange transaction, and that will not result in a loss on the sale of a product or service, a vendor shall recognize the cost of such a sales incentive at the later of the following:
a. The date at which the related revenue is recognized by the vendor.”
When CCPC sells the detergent to the wholersales and recognizes that revenue they should also be showing the effects of the coupon they are sending out.
Analysis of issue 3: What is the dollar amount of the effect of the Fresh & Bright coupon drop on CCPC's financial statement?
CCPC released approximately 500,000 coupons that will expire in one year to promote new detergent product. As CCPC has not offered coupons on detergent and coupons with a one-year expiration date before, it does not have any data to make reasonable and reliable estimation of redemption rate. CCPC should recognize the maximum potential amount of the rebate, which is equal to $1 million ($2 * 500,000 coupons), as deferred revenue or liability. Per ASC 605-50-25-4:
“...if the amount of future rebates or refunds cannot be reasonably and reliably estimated, a liability (or deferred revenue) shall be recognized for the maximum potential…