Live Well Inc Case 4

The most concerning issue is the way Live Well Inc. deal with consignment and the recognition of revenue. As Live Well Inc. sells products through another party, being the sales coordinators, they cannot recognize revenue as the consignment of goods does not constitute a sale. They can only identify the revenue when the consignee sells the goods to a third party. This rule applies to both ASPE and IFRS standards. They currently recognize revenue upon shipment, however under the new IFRS 15 guidelines, this approach cannot be taken. In order to meet IFRS 15 standards, the five step model must be taken into consideration. The first step being the acknowledgement of a contract with a customer, which in the consignment issue, does not exist. The
For the second criteria under IFRS 15, there must be a performance obligation that consist of a distinct good, which in this case is the product Live Well Inc. is distributing. There is also an identifiable transaction price, which is allocated towards all the performance obligations of the scenario. The last criteria for revenue recognition under IFRS 15 is that the transfer of control must be established. Selling the products to the sales coordinators does not transfer control, as the coordinators have the ability to return the goods at any moment in time. Under the ASPE model, the performance of a sale of good transaction is achieved when the seller of the goods have transferred all risks and rewards of ownership. In this case, recognizing revenue upon shipment does not transfer all risks and rewards, nor does the transfer of risk occur on consignment, therefore revenue should not be recognized. The second criteria is that the seller retains no effective control and the last criteria being reasonable assurance exists regarding the measurement of the consideration that will be derived from the sale of goods, and the extent to which goods may be
are financing. There are two categories of leases under IFRS: capital and operational. A capital lease transfers the risks and rewards of ownership to the lessee. The three criteria of a capital lease consists of, first, having a high probability that the ownership of the lease will be transferred to the lessee. The second criteria being, the lease term being long enough to expend the majority of the benefits. The last criteria is that the present value of the lease payments must be equal to most of the fair value of the leased asset. Live Well Inc.’s scenario defies the first requirement of capital leases. Despite Miles Ramp exclaiming that he is willing to purchase the asset at the end of the term, there are several variables that affect that decision. The first being the condition of the housing market and how high the interest rates are. The second being the investment from Shane Allstar. Both of these variables have a major impact on the decision Miles has to make on the lease. As it is not certain that neither the housing market will calms down or Allstar will invest, we cannot assume Miles will purchase the asset for sure. Additionally, accounting for the lease as a capital assets means we would have to debit an asset under capital lease account and credit a lease liability. Additionally, we would have to account for depreciation of the asset over the term as well as interest, which decreases our asset base