Emerald Motors is an automobile dealer. The controller consults with you about the type of accounting...

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Accounting

Emerald Motors is an automobile dealer. The controller consultswith you about the type of accounting used for a special offer toits new car customers. Emerald has offered to provide at no chargeto the customer the first four recommended service visits (i.e., at3,000, 6,000, 9,000, and 12,000 miles). It is a virtual certaintythat all customers will exercise their rights to the service, andthe cost of the services can be accurately estimated. Thecontroller reasons that the estimated cost should be accrued whenthe sale of an automobile is made so that all of the costs of thesale can be matched with the revenue. How would you respond to thecontroller?

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Explanation Going by the matching principle and accrual concept which states that revenue and expenses should be recognised when it is probable that 1 Risks and rewards related to goods has been transferred to buyer 2 The collection See Answer

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Emerald Motors is an automobile dealer. The controller consultswith you about the type of accounting used for a special offer toits new car customers. Emerald has offered to provide at no chargeto the customer the first four recommended service visits (i.e., at3,000, 6,000, 9,000, and 12,000 miles). It is a virtual certaintythat all customers will exercise their rights to the service, andthe cost of the services can be accurately estimated. Thecontroller reasons that the estimated cost should be accrued whenthe sale of an automobile is made so that all of the costs of thesale can be matched with the revenue. How would you respond to thecontroller?