Prescritptions Depot Limited Essay

1100 Words5 Pages
Case 12-1 Prescriptions Depot Limited Overview Prescriptions Depot Limited (PDL) is a large private company with revenues of $5.4 billion and earnings of $295 million. The company wishes to comply with IFRS, and is contemplating a public offering in the medium term. GAAP compliance is therefore important. Reporting objectives are to report growth in sales, especially year-over-year same-store sales growth, and stable earnings. Because of possible analyst interest, sales measurement is of critical importance. Ethical reporting choices are critical, given the possibility for increased scrutiny in the future; sudden changes in accounting policy at a later date may not be viewed with favor by analysts. Reporting objectives are meant to support a public offering. Issues 1. Loyalty points program 2. Decommissioning obligation 3. Cash refund program 4. Coupon program Analysis and recommendations 1. Loyalty points program PDL operates a loyalty points program, which will impact on the measurement of sales revenue, important for analysts. Currently, a sale transaction with point value attached is recognized as a sale entirely in the current period. An expense and liability for the expected cost – not sales value – of goods to be redeemed in the future is recognized in the same time period as the sale. This policy maximizes the sales value recorded with the initial transaction. It does not reflect the substance of the transaction, though, which is that PDL has rendered multiple deliverables in sale: both the initial sale, and the subsequent sale based on points value are being sold. Accordingly, PDL must consider an alternate approach to its loyalty point program: On a sale that involves issuance of points, some of the sale value is assigned to current sales, but the retail value of points to be redeemed in the future is recorded as

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