1. At our recent board meeting, several directors raised concerns about spending too many man hours (and dollars I must say) on accounting for future tax consequences. Their biggest argument was that as long as the tax man is happy and we are not cheating on our tax returns, then we are simply wasting money in accounting for temporary differences and deferred tax assets (DTAs) and deferred tax liabilities (DTLs) (which I must admit is a mystery to me). Do you have any problems if we do not account for the DTAs and DTLs and just account for the current tax liability?
2.Our company has recently entered into a long-term and a radical agreement with several of our retailers in Australia. Under the new agreement, at the start of every quarter, we will ship a variety of our products (suitable for that state and that time of the year) to our retailers. All retailers have agreed to set aside a section in their stores to exclusively display our products including the display windows at the front of the store. In return we have agreed to pay a fee to each store on a monthly basis for allowing us the access to this window space and space on the shop floor to advertise and sell our products. The average fee is around $600 per square meter, per store per month. At the end of the quarter, the store will return all the unsold products to us and we will send out a new shipment to prepare for the next quarter. The stores will also transfer the revenue from total sales to us after deducting the display fee noted above. The board unanimously agreed to recognize the sales revenue at the start of the quarter.
At the end of the quarter when the excess inventory is returned to us by the stores, we can always make the necessary adjustments i.e. reverse both the sales revenue and cost of sales as well the amount owed by the stores and the incoming inventory. After all, the net effect would be the actual sales of the period. The board also agreed that the fee we pay to the stores should not be recorded separately because that is the cost of doing business. So we will only record the net amount received as sales revenue. This should simplify matters, shouldn’t it?