Consumer Cleaning Products (CCPC) is a public manufacturing company with a calendar year the same as the fiscal year. CCPC's supply chain consists of :
CCPC introduced a new product September 1, 2009 called Fresh & Bright. Part of CCPC's marketing campaing was to "drop" appromixamatly 500,000 coupons in the Sunday newspaper where Fresh & Bright was sold. The coupon worked in the following way:
The 500,000 coupons could be used through October 1, 2010. CCPC has data one six month coupons for other products but does not have any data on one year coupons for detergent. CCPC estimates that two percent of the detergent coupon will be redeemed. As of Septemeber 30, 2009 CCPC has sold $2,000,000 of Fresh & Bright. …show more content…
In the past, CCPC offered coupons with a six-month expiration date on other products and they had a redemption rate of 1.5 percent. Although the coupons are for a different product they are in the same industry. CCPC would have to forecast the historical data on they have on six month coupons to twelve months. If CCPC came up with a 2 percent redemption rate it would constitute as “sufficient evidence.” CCPC could then use the estimation of approximately 2 percent of new coupons will be redeemed by customers.
Analysis of issue 5:What are the accounting implications if CCPC's estimated redemption rate changes to 2.5 percent at a later point in time?
ASC 605-50-25-9 provides the following guidance in respect to change in estimated redemption rate.
“Changes in the estimated amount of rebates or refunds and retroactive changes by a vendor to a previous offer (an increase or a decrease in the rebate amount that is applied retroactively) shall be recognized using a cumulative catch-up adjustment. That is, the vendor would adjust the balance of its rebate obligation to the revised estimate immediately. The vendor would then reduce revenue on future sales based on the revised refund obligation rate as computed.”
In this case, their estimated liability would remain at $1 million because they still could not reasonably estimate the redemption rate.
(cf. if CCPC could