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Sales Returns ReserveRefund Liability and Return Asset (ASC 606)

What do the numbers come to once the work is shown?

Refund liability, asset for the right to recover goods, net revenue and cost of sales for sales with a right of return.

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Your figures
Example figuresIllustrative only. Type over them with your own.
Refund liability
$80,000
Consideration expected to be refunded
Net revenue
$1,920,000
Asset for right to recover products
$43,200
Drawn to one scale
Refund liability$80,000
Net revenue$1,920,000
Asset for right to recover products$43,200
Cost of sales$1,156,800
Gross profit$763,200
All results
MeasureResult
Refund liability$80,000
Net revenue$1,920,000
Asset for right to recover products$43,200
Cost of sales$1,156,800
Gross profit$763,200
How this was worked out
Work shownrecomputed as you type
Refund liability = sales x expected return rate
Return asset = cost x return rate x (1 - recovery costs and value loss)
Cost of sales = cost - return asset

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • Refund liability = sales x expected return rate
  • Return asset = cost x return rate x (1 - recovery costs and value loss)
  • Cost of sales = cost - return asset

How it works

Under ASC 606-10-55-22 to 55-29 an entity recognizes revenue for the consideration it expects to be entitled to, a refund liability for the rest, and an asset for its right to recover products, measured at the former carrying amount less expected recovery costs and any decrease in value.

The return asset is presented separately from the refund liability. Both are updated each reporting date for changes in expected returns.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

Is the expected return rate subject to the constraint?

Yes. Returns are variable consideration and the constraint in ASC 606-10-32-11 applies.

Can I net the return asset and refund liability?

No. ASC 606-10-55-27 requires the asset to be presented separately.

What about exchanges for the same product?

Exchanges of one product for another of the same type, quality, condition and price are not returns under ASC 606-10-55-28.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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