Under IFRS, where a right to return exists,
A) sales returns and allowances are recognized as contra accounts to Revenues and Accounts Receivable.
B) a refund liability is recognized.
C) this right is disclosed in the financial statements; no accrual necessary.
D) this right does not need to be disclosed or accrued anywhere.

Question

Quizplus · Accepted Answer

Under IFRS, when a right to return exists, a refund liability should be recognized in the financial statements. This reflects the obligation of the entity to refund customers for returned goods. The amount of the liability should be based on the best estimate of the refunds that will be required, taking into consideration historical experience and any other relevant factors. This liability should be recognized at the same time as the revenue is recognized for the sale of goods. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect because they do not reflect the requirement to recognize a refund liability.

Under IFRS, Where a Right to Return Exists